PRINTER'S NO. 2642
No. 1962 Session of 1985
INTRODUCED BY PRATT, RYBAK, GODSHALL, LIVENGOOD, REINARD,
MOWERY, DeVERTER, ROBBINS AND DURHAM, DECEMBER 10, 1985
REFERRED TO COMMITTEE ON INSURANCE, DECEMBER 10, 1985
AN ACT
1 Amending Title 40 (Insurance) of the Pennsylvania Consolidated
2 Statutes, adding provisions relating to insurance; and making
3 repeals.
4 TABLE OF CONTENTS
5 TITLE 40
6 INSURANCE
7 PART I. PRELIMINARY PROVISIONS
8 Chapter 1. General Provisions
9 § 101. Short title of title.
10 § 102. Definitions.
11 PART II. REGULATION OF INSURERS AND RELATED
12 PERSONS GENERALLY
13 Chapter 3. General Provisions
14 § 301. Definitions (Reserved).
15 § 302. Applicability of part.
16 § 303. Compliance with part.
17 § 304. Regulations.
18 Chapter 5. Insurance Department
1 § 501. Establishment of department.
2 § 502. Appointment of commissioner.
3 § 503. Restrictions on officers and employees.
4 § 504. Seal.
5 § 505. Certified documents and copies.
6 § 506. Certificates of authority to do business.
7 § 507. Penalty for acting without authority.
8 § 508. Fees.
9 § 509. Assessments for expenses of Committee on Valuation
10 of Securities.
11 § 510. Additional restrictions of other states.
12 § 511. Examination of companies.
13 § 512. Powers with regard to examinations.
14 § 513. Collection of taxes, fines and penalties.
15 § 514. Records and report of department.
16 Chapter 7. Reserve Liability
17 Subchapter A. Life Insurance and Annuities
18 § 701. Valuation by commissioner.
19 § 702. Computation of reserves on prior policies.
20 § 703. Computation of reserves on recent policies.
21 § 704. Reserve fund.
22 § 705. Alternative reserve determination.
23 § 706. Computation of reserves for health and accident
24 insurance.
25 § 707. Minimum reserve requirements of certain companies.
26 § 708. Valuations by other states.
27 § 709. Valuation of securities.
28 Subchapter B. Insurance Other than Life Insurance
29 § 721. Computation of unearned premium liability.
30 Subchapter C. Workmen's Compensation and Liability Insurance
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1 § 731. Definitions.
2 § 732. Computation of reserves.
3 § 733. Distribution of unallocated loss expense payments.
4 § 734. Power of commissioner to determine reserves.
5 Subchapter D. Casualty Insurance
6 § 741. Right of action.
7 § 742. Notice of impairment of funds.
8 Subchapter E. Title Insurance
9 § 751. Title insurance reserve.
10 § 752. Reinsurance on liquidation of company.
11 § 753. Recovery by policyholders.
12 Chapter 9. Deposits of Securities to do Interstate Business
13 § 901. Deposit of securities with commissioner.
14 § 902. State Treasurer as custodian.
15 § 903. Return of securities.
16 § 904. Actions in equity regarding deposits.
17 Chapter 11. Agents and Brokers
18 Subchapter A. Agents
19 § 1101. Definition of agent.
20 § 1102. Certification of agents.
21 § 1103. Licenses of agents.
22 § 1104. Penalty for doing business as agent without license.
23 § 1105. Personal liability of agents for unauthorized entity.
24 § 1106. Penalty for advertising as agent of unauthorized
25 entity.
26 § 1107. Penalty for soliciting for nonexistent company.
27 § 1108. Licensure of nonresident agents.
28 Subchapter B. Automobile Insurance
29 § 1121. Definitions.
30 § 1122. Cancellation of contract.
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1 § 1123. Continuation of business.
2 § 1124. Exclusions.
3 § 1125. Penalties.
4 Subchapter C. Insurance Brokers
5 § 1131. Definition.
6 § 1132. Licenses of brokers.
7 § 1133. Penalty for acting as broker without license.
8 § 1134. Doing business with unlicensed brokers.
9 § 1135. Payment of commissions to brokers.
10 Subchapter D. Agents and Brokers
11 § 1141. Penalty for acting for entities failing to authorize
12 substituted service.
13 § 1142. Larceny.
14 § 1143. Fiduciary capacity.
15 § 1144. Paying or receiving compensation for certain life
16 insurance.
17 § 1145. Offering rebates and inducements.
18 § 1146. Acceptance of rebates.
19 § 1147. Misrepresentation of policy terms.
20 § 1148. Misrepresentation to induce change of insurers.
21 § 1149. Penalties imposed by commissioner.
22 § 1150. Exemption from licensure.
23 Subchapter E. Managers and Exclusive General Agents
24 § 1161. Certification.
25 § 1162. Licensure.
26 § 1163. Exclusion, sale or transfer.
27 § 1164. Revocation and suspension of license.
28 § 1165. Penalties.
29 Subchapter F. Public Adjusters and Solicitors
30 § 1171. Definitions.
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1 § 1172. Licensure.
2 § 1173. Fees.
3 § 1174. Bonds.
4 § 1175. Contracts.
5 § 1176. Penalties.
6 § 1177. Violations.
7 Subchapter G. Public Remedies for Unlicensed Activity
8 § 1191. Injunction or other process.
9 Chapter 13. Unlicensed Insurers
10 § 1301. Purpose of chapter.
11 § 1302. Definitions.
12 § 1303. Aiding unlicensed insurers.
13 § 1304. Surplus lines insurance.
14 § 1305. Exclusions.
15 § 1306. Declarations.
16 § 1307. Eligible surplus lines insurers.
17 § 1308. Licensure of surplus lines agents.
18 § 1309. Bond of surplus lines agents.
19 § 1310. Penalties.
20 § 1311. Surplus lines tax.
21 § 1312. Information required on contract.
22 § 1313. Service of process.
23 § 1314. Rights of insured.
24 § 1315. Penalties.
25 Chapter 15. Unfair Insurance Practices
26 § 1501. Short title of chapter.
27 § 1502. Purpose of chapter.
28 § 1503. Definitions.
29 § 1504. Unfair practices.
30 § 1505. Immunity for statements or information.
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1 § 1506. Powers of commissioner.
2 § 1507. Administrative action.
3 § 1508. Injunction.
4 § 1509. Civil penalties.
5 § 1510. Exclusions.
6 Chapter 17. Reporting Requirements
7 § 1701. Definitions.
8 § 1702. Disposal of assets.
9 § 1703. Ceding or reinsurance.
10 § 1704. Business operations.
11 § 1705. Reports of financial condition.
12 § 1706. Additional reports from foreign or alien entities.
13 Chapter 19. Insurance Rates
14 § 1901. General provisions.
15 § 1902. Scope of chapter.
16 § 1903. Ratemaking.
17 § 1904. Rate filings.
18 § 1905. Disapproval of filings.
19 § 1906. Rating organizations.
20 § 1907. Deviations.
21 § 1908. Appeal by minority.
22 § 1909. Information to be furnished insureds.
23 § 1910. Hearings and appeals of insureds.
24 § 1911. Advisory organizations.
25 § 1912. Joint underwriting or joint reinsurance.
26 § 1913. Examinations.
27 § 1914. Recording and reporting of loss and expense experience.
28 § 1915. False or misleading information.
29 § 1916. Assigned risks.
30 § 1917. Penalties.
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1 § 1918. Hearing procedure and judicial review.
2 Chapter 21. Reciprocal and Inter-Insurance Exchanges
3 § 2101. General provisions.
4 § 2102. Authority to exchange.
5 § 2103. Declarations.
6 § 2104. Certificates of attorney.
7 § 2105. Statements to be filed by attorney.
8 § 2106. Examination by commissioner.
9 § 2107. Reserves.
10 § 2108. Fees and taxes.
11 § 2109. Penalty.
12 Chapter 23. Lloyds Associations
13 § 2301. Definition.
14 § 2302. Authorization.
15 § 2303. Declarations.
16 § 2304. Certification to do business.
17 § 2305. Examination by commissioner.
18 § 2306. Deposits by alien underwriters.
19 § 2307. Return of deposits.
20 § 2308. Additional and substituted underwriters.
21 § 2309. Information to be furnished to commissioner.
22 § 2310. Maximum amount of risks.
23 § 2311. Applicability of other provisions.
24 § 2312. Penalties.
25 PART III. ORGANIZATION OF INSURANCE ENTITIES
26 Chapter 31. General Provisions
27 § 3101. Scope of part.
28 § 3102. Acceptance of part.
29 § 3103. Exemption from part.
30 § 3104. Power of General Assembly regarding charters.
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1 § 3105. Persons prohibited from insurance business.
2 § 3106. Judicial proceedings.
3 Chapter 33. Incorporation of Insurance Companies
4 Subchapter A. Formation of Corporations
5 § 3301. Classes of insurance companies.
6 § 3302. Authorized classes of insurance.
7 § 3303. Articles of agreement.
8 § 3304. Name of company.
9 § 3305. Capital stock.
10 § 3306. Minimum capital stock and financial requirements.
11 § 3307. Officers and directors.
12 § 3308. Subscriptions.
13 Subchapter B. Promotion
14 § 3321. Definitions.
15 § 3322. Prohibited acts.
16 § 3323. Limitation on promotional expenses.
17 § 3324. Form of application or contract.
18 § 3325. Depositories.
19 § 3326. Disclosure of interest.
20 § 3327. Prohibited terms.
21 § 3328. Advertisements and prospectuses.
22 § 3329. Remedies.
23 § 3330. Criminal penalties.
24 Subchapter C. Authorization
25 § 3341. Certification to commissioner.
26 § 3342. Approval of articles of agreement and letters patent.
27 § 3343. Recording of articles of agreement and letters patent.
28 § 3344. Information filed with the Auditor General.
29 § 3345. Certificate of authority.
30 Subchapter D. Valuation of Securities
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1 § 3351. Valuation of securities.
2 Subchapter E. Conversion of Mutual Companies to Corporations
3 § 3361. Definitions.
4 § 3362. Valuation of interest of owner.
5 § 3363. Documentation filed with commissioner.
6 § 3364. Determination by commissioner.
7 § 3365. Hearing on approval.
8 § 3366. Approval of plan of conversion by policyholders.
9 § 3367. Recording plan of conversion.
10 § 3368. Legal effect of conversion.
11 § 3369. Subscriptions to capital stock of company.
12 § 3370. Survival of mutual policies.
13 § 3371. Laws applicable to converted companies.
14 § 3372. Commencement of business.
15 Chapter 35. Corporate Operations
16 Subchapter A. Conduct of Business
17 § 3501. Use of company name.
18 § 3502. Stock and stockholders.
19 § 3503. Ownership of stock.
20 § 3504. Bylaws and seal.
21 § 3505. Administrative affairs.
22 § 3506. Salaries of employees in military service.
23 § 3507. Pensions.
24 § 3508. Execution of insurance policies.
25 § 3509. Joint policies.
26 § 3510. Incorporation of documents in policy.
27 § 3511. Lost insurance policies.
28 § 3512. Reinsurance.
29 § 3513. Reinsurance credits.
30 § 3514. Reinsurance among affiliates.
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1 § 3515. Approval of contracts by commissioner.
2 § 3516. Mortgage insurance.
3 § 3517. Distribution of dividends on group insurance.
4 Subchapter B. Election of Directors and Officers
5 § 3531. Annual meetings.
6 § 3532. Voting rights.
7 § 3533. Election of directors and trustees.
8 § 3534. Mutual fire insurance companies.
9 § 3535. Voting by stockholders and members.
10 § 3536. Proxies issued by domestic stock companies.
11 § 3537. Cumulative voting.
12 § 3538. Failure to elect directors or trustees.
13 § 3539. Directors and trustees.
14 Subchapter C. Fundamental Changes
15 § 3551. Stock votes on particular subjects.
16 § 3552. Amendment of charter.
17 § 3553. Proceedings to file amended charter and certification.
18 § 3554. Power to increase capital stock.
19 § 3555. Proceedings to increase capital stock.
20 § 3556. Records of increases of capital stock.
21 § 3557. Sale of increases of capital stock.
22 § 3558. Reduction of capital stock.
23 Subchapter D. Merger, Consolidation and Voluntary
24 Dissolution
25 § 3561. Power to merge or consolidate.
26 § 3562. Proceedings to merge or consolidate.
27 § 3563. Dissenters' rights upon merger or consolidation.
28 § 3564. Merger of domestic and foreign insurance companies.
29 § 3565. Protection of competition.
30 § 3566. Merger by acquisition of stock.
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1 § 3567. Dissenters' rights upon merger by acquisition of stock.
2 § 3568. Approval of acquisitions by commissioner.
3 § 3569. Holding company systems.
4 § 3570. Voluntary dissolution.
5 § 3571. Dissolution for failure to do business.
6 Subchapter E. Foreign or Alien Companies
7 § 3576. Government-owned companies.
8 § 3577. Conditions for authorization of foreign or alien
9 companies.
10 § 3578. Power of foreign or alien insurance companies
11 as to real property.
12 Subchapter F. Violations and Penalties
13 § 3581. Embezzlement by officers or agents.
14 § 3582. Rebates and inducements.
15 § 3583. Misrepresentations.
16 § 3584. Penalties for deceptive practices.
17 § 3585. Unfair discrimination.
18 § 3586. Unauthorized business practices.
19 § 3587. Buying proxies.
20 § 3588. Unauthorized motor vehicle services.
21 § 3589. Fraud in obtaining licenses or certificates.
22 § 3590. Securities transactions.
23 Chapter 37. International Operations
24 § 3701. Authority to transact business outside United States.
25 § 3702. Domestication of alien insurers.
26 Chapter 39. Suspension of Business and Dissolution
27 Subchapter A. General Provisions
28 § 3901. Construction and purpose.
29 § 3902. Applicability of chapter.
30 § 3903. Definitions.
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1 Subchapter B. Judicial and Administrative Procedure
2 § 3911. Jurisdiction and venue.
3 § 3912. Injunctions and orders.
4 § 3913. Cooperation of officers and employees.
5 § 3914. Bonds.
6 § 3915. Reports of commissioner.
7 Subchapter C. Summary Proceedings
8 § 3921. Summary orders of commissioner.
9 § 3922. Supervision by commissioner.
10 § 3923. Seizure orders.
11 § 3924. Conduct of hearings.
12 Subchapter D. Rehabilitation
13 § 3931. Grounds for rehabilitation.
14 § 3932. Rehabilitation orders.
15 § 3933. Powers and duties of the rehabilitator.
16 § 3934. Actions by and against rehabilitator.
17 § 3935. Termination of rehabilitation.
18 Subchapter E. Liquidation Proceedings
19 § 3941. Grounds for liquidation.
20 § 3942. Liquidation orders.
21 § 3943. Continuation of coverage.
22 § 3944. Dissolution of insurer.
23 § 3945. Powers of liquidator.
24 § 3946. Notice to creditors and others.
25 § 3947. Duties of agents.
26 § 3948. Actions by and against liquidator.
27 Subchapter F. Estate of Liquidated Insurer
28 § 3951. Collection and list of assets.
29 § 3952. Fraudulent transfers prior to petition.
30 § 3953. Fraudulent transfers after petition.
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1 § 3954. Voidable preferences and liens.
2 § 3955. Claims of holders of void or voidable rights.
3 § 3956. Setoffs and counterclaims.
4 § 3957. Assessments.
5 § 3958. Liability of reinsurer.
6 § 3959. Recovery of premiums.
7 § 3960. Proposal for distribution.
8 Subchapter G. Distribution of Estate of Liquidated Insurer
9 § 3961. Filing of claims.
10 § 3962. Proofs of claim.
11 § 3963. Special claims.
12 § 3964. Third-party claims.
13 § 3965. Disputed claims.
14 § 3966. Claims of surety.
15 § 3967. Secured claims of creditors.
16 § 3968. Order of distribution.
17 § 3969. Liquidator's recommendations to the court.
18 § 3970. Distribution of assets.
19 § 3971. Unclaimed and withheld funds.
20 § 3972. Termination of proceedings.
21 § 3973. Reopening of liquidation.
22 § 3974. Disposition of records.
23 § 3975. External audit of receiver.
24 § 3976. Federal receivership.
25 Subchapter H. Interstate Relations
26 § 3981. Conservation of property of foreign or alien insurers.
27 § 3982. Liquidation of property of foreign or alien insurers.
28 § 3983. Foreign domiciliary receivers in other states.
29 § 3984. Ancillary formal proceedings.
30 § 3985. Ancillary summary proceedings.
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1 § 3986. Claims of nonresidents against domiciliary insurers.
2 § 3987. Claims of residents against insurers of reciprocal
3 states.
4 § 3988. Execution proceedings.
5 § 3989. Interstate priorities.
6 § 3990. Subordination of claims for lack of cooperation.
7 Chapter 41. Beneficial Societies
8 § 4101. Short title of chapter.
9 § 4102. Applicability of chapter.
10 § 4103. Limitation of benefits.
11 § 4104. Selection of directors.
12 § 4105. Holding management or agency corporations.
13 § 4106. Reserves.
14 § 4107. Investment of surplus.
15 § 4108. Annual statements.
16 § 4109. Examinations.
17 § 4110. Filing and approval of documents.
18 § 4111. Qualifications of solicitors and agents.
19 § 4112. Inclusion of certain documents in policy.
20 § 4113. Criminal penalties.
21 § 4114. Civil penalties.
22 § 4115. Transfer restrictions.
23 Chapter 43. Fraternal Benefit Society Code of 1972
24 Subchapter A. Preliminary Provisions
25 § 4301. Short title and applicability of chapter.
26 § 4302. Definitions.
27 § 4303. Exemptions applicable to fraternal benefit societies.
28 Subchapter B. Certification and General Regulation
29 § 4311. Preliminary certification.
30 § 4312. Organizational period.
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1 § 4313. Permanent certificate of authority.
2 § 4314. Certain fundamental changes.
3 § 4315. Examination of societies.
4 § 4316. Restrictions on publication of examinations.
5 § 4317. Registration of principal office.
6 Subchapter C. Organization and Operation
7 § 4321. Restrictions on governmental structure.
8 § 4322. General powers of fraternal benefit societies.
9 § 4323. Collection of sufficient contributions.
10 § 4324. Waiver of organic law.
11 § 4325. Individual liability.
12 § 4326. Power to write insurance.
13 § 4327. Members and beneficiaries.
14 § 4328. Benefits upon lives of children.
15 § 4329. Beneficiary certificates.
16 § 4330. Liens against certificates.
17 § 4331. Attachment of benefits.
18 § 4332. Notice required for agreement with beneficiary.
19 § 4333. Beneficiary predeceasing a member.
20 § 4334. Disappearance of member.
21 § 4335. Exemption of societies paying accident benefits only.
22 Subchapter D. Financial Matters
23 § 4341. Funds and investments.
24 § 4342. Annual statement.
25 § 4343. Valuation report.
26 § 4344. Accumulation and tabular bases of valuation.
27 § 4345. Valuation of noncancelable health and accident
28 benefits.
29 Subchapter E. Conversion to Mutual Life Insurance Company
30 § 4351. Power to effect conversion.
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1 § 4352. Proceedings before commissioner.
2 § 4353. Organization of company.
3 § 4354. Rights and liabilities of converted societies.
4 Subchapter F. Foreign Societies
5 § 4361. Licensure of authorized societies.
6 § 4362. Application for admission to do business.
7 § 4363. Admission of certain societies.
8 § 4364. Acceptance of foreign examinations.
9 § 4365. Revocation of authority.
10 § 4366. Procedure before commissioner.
11 Subchapter G. Crimes and Penalties
12 § 4371. Issuing unapproved contracts or certificates.
13 § 4372. Failure to file annual statements.
14 § 4373. Misrepresentations.
15 § 4374. Soliciting memberships in unlicensed society.
16 § 4375. Other violations of chapter.
17 Subchapter H. Regulation of Beneficial Societies
18 § 4381. General regulation.
19 Chapter 45. Fraternal Benefit Society Code of 1977
20 Subchapter A. General Provisions
21 § 4501. Short title of chapter.
22 § 4502. Definitions.
23 § 4503. Exemption from general insurance law.
24 § 4504. Taxation.
25 § 4505. Applicability of chapter.
26 Subchapter B. Organization and Corporate Operations
27 § 4511. Initial organization.
28 § 4512. Filing of initial papers with commissioner.
29 § 4513. Validity of preliminary certificate.
30 § 4514. Solicitation of members.
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1 § 4515. Examination by commissioner.
2 § 4516. Exemption.
3 § 4517. Approval of documents.
4 § 4518. General corporate powers of societies.
5 § 4519. Review of orders of commissioner.
6 § 4520. Classes of membership.
7 § 4521. Prohibition of activity.
8 § 4522. Location of offices and meetings.
9 § 4523. Consolidations and mergers.
10 § 4524. Amendments to articles of incorporation, constitution
11 and bylaws.
12 § 4525. Institutions.
13 § 4526. Personal liability.
14 § 4527. Waiver.
15 § 4528. Conversion of society into mutual life insurance
16 company.
17 § 4529. Reinsurance.
18 Subchapter C. Benefits and Beneficiaries
19 § 4531. Benefits.
20 § 4532. Benefits on lives of children.
21 § 4533. Benefit options.
22 § 4534. Beneficiaries.
23 § 4535. Attachment of benefits.
24 § 4536. Contract for benefits.
25 Subchapter D. Certificates
26 § 4541. Approval of certificates.
27 § 4542. Criteria of review.
28 § 4543. Statement of title and premiums.
29 § 4544. Membership provisions.
30 § 4545. Default.
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1 § 4546. Tables.
2 § 4547. Redetermination of premiums.
3 § 4548. Surplus.
4 § 4549. Loan value.
5 Subchapter E. Accident, Health and Disability Insurance
6 Contracts
7 § 4551. Approval of contracts by commissioner.
8 § 4552. Conditions for certificates.
9 § 4553. Standard contract provisions.
10 § 4554. Entire contract and changes.
11 § 4555. Time limits on certain defenses.
12 § 4556. Grace periods.
13 § 4557. Reinstatement.
14 § 4558. Claim procedure.
15 § 4559. Payment of claims.
16 § 4560. Legal actions.
17 § 4561. Change of beneficiary.
18 § 4562. Change of occupation.
19 § 4563. Conduct of insured.
20 § 4564. Other insurance.
21 § 4565. Relation of earnings to insurance.
22 § 4566. Cancellation.
23 § 4567. Conformity of provisions with state statutes.
24 § 4568. Inapplicable provisions.
25 § 4569. Composition and construction of certificates.
26 Subchapter F. Licensure
27 § 4571. Annual license for societies.
28 § 4572. Fees.
29 § 4573. Foreign societies.
30 § 4574. Injunction, liquidation or receivership of domestic
19850H1962B2642 - 18 -
1 societies.
2 § 4575. Suspension, revocation or refusal of license to
3 foreign societies.
4 § 4576. Application for injunction.
5 § 4577. Licensure of fraternal insurance agents.
6 Subchapter G. Regulation of Operations
7 § 4581. Funds.
8 § 4582. Investments.
9 § 4583. Report of financial condition.
10 § 4584. Determination of reserves.
11 § 4585. Deferred payments as liability.
12 § 4586. Certification of valuation.
13 § 4587. Valuation standards.
14 § 4588. Excess reserves.
15 § 4589. Examination of societies.
16 § 4590. Misrepresentations.
17 § 4591. Discrimination and rebates.
18 § 4592. Penalties.
19 Chapter 47. Mutual Companies
20 § 4701. Definition.
21 § 4702. Licensing of foreign or alien companies.
22 § 4703. Investment of assets.
23 § 4704. Investments in real estate.
24 § 4705. Policy provisions.
25 § 4706. Countersigning and delivery of policies.
26 § 4707. Premiums.
27 § 4708. Reserves.
28 § 4709. Assessments.
29 § 4710. Loans to companies.
30 § 4711. Surplus.
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1 PART IV. SPECIAL PROVISIONS RELATING TO
2 PARTICULAR CLASSES OF RISK
3 Chapter 51. General Provisions (Reserved)
4 Chapter 53. Life Insurance
5 Subchapter A. Investments and Corporate Operations
6 § 5301. General investment provisions.
7 § 5302. Investment of capital and reserves.
8 § 5303. Investment of surplus and balance of reserves.
9 § 5304. Acquisition and retention of subsidiaries.
10 § 5305. Authorized holdings of real estate.
11 § 5306. Capital of foreign and alien stock companies.
12 § 5307. Separate accounts.
13 § 5308. Impairment of reserve liability.
14 § 5309. Penalty.
15 § 5310. Corporations operating under prior statutes.
16 § 5311. Dividends.
17 § 5312. Compensation.
18 § 5313. Vouchers for payment.
19 Subchapter B. Conduct of Business
20 § 5321. Uniform policy provisions.
21 § 5322. Standard nonforfeiture law for life insurance.
22 § 5323. Annuity and endowment contracts.
23 § 5324. Standard nonforfeiture law for individual deferred
24 annuities.
25 § 5325. Notice of right to examine policies.
26 § 5326. Policy loan interest rates.
27 § 5327. Prohibited policy provisions.
28 § 5328. Medical examinations.
29 § 5329. Insurance on the life of another person.
30 § 5330. Statements by prospective insured.
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1 § 5331. Insurance proceeds.
2 § 5332. Variable benefits contracts.
3 § 5333. Certain life, health and accident companies.
4 § 5334. Exchange, alteration and conversion of policies.
5 § 5335. Penalty for misrepresentation.
6 Subchapter C. Conversion of Stock Companies into Mutual
7 Companies
8 § 5341. Power to effect conversion.
9 § 5342. Approval of plan of conversion.
10 § 5343. Filing of plan.
11 § 5344. Rights of dissenters.
12 § 5345. Completion of conversion.
13 Subchapter D. Mutual Life Insurance Companies
14 § 5351. Foreign and alien companies.
15 § 5352. Guarantee capital subscriptions.
16 § 5353. Surplus or safety fund.
17 Subchapter E. Group Insurance
18 § 5361. Authorized types of group insurance.
19 § 5362. Coverage of spouse and children.
20 § 5363. Policies issued to employers or trustees.
21 § 5364. Policies issued to trustees of joint funds.
22 § 5365. Policies issued to creditors.
23 § 5366. Policies issued to employee organizations.
24 § 5367. Standard policy provisions.
25 § 5368. Notice of conversion privileges.
26 § 5369. Assignment of incidents of ownership.
27 § 5370. Existing policies.
28 § 5371. Basis of premiums.
29 § 5372. Voting power of employers.
30 § 5373. Insurance for public employees.
19850H1962B2642 - 21 -
1 § 5374. Payment of public employee group premiums.
2 Subchapter F. Industrial Insurance
3 § 5381. Definition.
4 § 5382. Uniform policy provisions.
5 § 5383. Prohibited policy provisions.
6 § 5384. Notice of right to examine policies.
7 Subchapter G. Limited Life Insurance Companies
8 § 5391. Definition.
9 § 5392. Powers of limited life insurance companies.
10 § 5393. Reincorporation as limited life insurance company.
11 § 5394. Procedure for reincorporation.
12 § 5395. Authorization to do business.
13 § 5396. Reserves and capital stock requirements.
14 § 5397. Election of directors.
15 Chapter 55. Property and Casualty Insurance
16 Subchapter A. General Regulation
17 § 5501. Applicability of chapter.
18 § 5502. Financial requirements of foreign or alien companies.
19 § 5503. Investment of capital.
20 § 5504. Investments in financial institutions.
21 § 5505. Investment of surplus.
22 § 5506. Authorized holdings of real estate.
23 § 5507. Dividends.
24 § 5508. Reduction and withdrawal of capital stock.
25 § 5509. Procedure when capital impaired.
26 § 5510. Resident agents for foreign or alien insurance
27 entities.
28 Subchapter B. Workmen's Compensation Insurance
29 § 5521. Policy provisions.
30 § 5522. Actions for premiums.
19850H1962B2642 - 22 -
1 § 5523. Rating plans.
2 § 5524. Annual report of premiums and loss experience.
3 Subchapter C. Employers' Mutual Liability Insurance
4 Associations
5 § 5531. Definitions.
6 § 5532. Examination of premises and books.
7 § 5533. Rules and regulations.
8 § 5534. Premiums.
9 § 5535. Division of subscribers into groups.
10 § 5536. Powers of commissioner.
11 § 5537. Dividends.
12 § 5538. Surplus.
13 § 5539. Contingent mutual liability of subscribers.
14 § 5540. Assessments.
15 § 5541. Withdrawal of subscribers.
16 Subchapter D. Arson Reporting Immunity
17 § 5551. Short title of subchapter.
18 § 5552. Definitions.
19 § 5553. Disclosure of information.
20 § 5554. Immunity.
21 § 5555. Evidence.
22 § 5556. Penalty.
23 § 5557. Construction of subchapter.
24 § 5558. Regulations.
25 Subchapter E. Anti-Arson Applications
26 § 5561. Short title of subchapter.
27 § 5562. Purpose of subchapter.
28 § 5563. Definitions.
29 § 5564. Applicability of subchapter.
30 § 5565. Form of anti-arson applications.
19850H1962B2642 - 23 -
1 § 5566. Insurability.
2 § 5567. Requirement and effect of anti-arson applications.
3 § 5568. Alternative anti-arson applications.
4 § 5569. Termination of insurance policies or contracts.
5 § 5570. Penalties.
6 § 5571. Advisory board.
7 Subchapter F. Miscellaneous Provisions
8 § 5581. Companies providing boiler insurance.
9 § 5582. Boiler insurance in cities of the first class.
10 § 5583. Insurance consultation services exemption.
11 Chapter 57. Pennsylvania Fair Plan
12 Subchapter A. General Provisions
13 § 5701. Short title of chapter.
14 § 5702. Purposes of chapter.
15 § 5703. Definitions.
16 Subchapter B. Structure of Fair Plan
17 § 5711. Industry placement facility.
18 § 5712. Fair plan.
19 § 5713. Distribution of risks.
20 § 5714. Uninsurable risks.
21 § 5715. Regulation by commissioner.
22 § 5716. Annual and other statements.
23 § 5717. Privileged communications.
24 § 5718. Review.
25 Subchapter C. Pennsylvania Civil Disorder Authority
26 § 5721. Formation of authority.
27 § 5722. Board of directors.
28 § 5723. Powers of authority.
29 § 5724. Civil Disorder Authority Fund.
30 § 5725. Reimbursement payments to Federal reinsurance facility.
19850H1962B2642 - 24 -
1 § 5726. Bonds of authority.
2 § 5727. Remedies of bondholder.
3 Subchapter D. Basic Property Insurance Assessment
4 § 5731. Levy and amount of assessment.
5 § 5732. Payments to Pennsylvania Civil Disorder Authority.
6 § 5733. Reports and statements.
7 § 5734. Duration of assessment.
8 Chapter 59. Fire and Marine Insurance
9 Subchapter A. Insurers Generally
10 § 5901. Resident agents for foreign or alien insurance
11 entities.
12 § 5902. Examination of foreign or alien entities by
13 commissioner.
14 § 5903. Annual returns.
15 § 5904. Penalties and revocation of license.
16 § 5905. Reports of fires to Bureau of Fire Protection.
17 § 5906. Provisions of fire insurance policies.
18 § 5907. Penalties for issuing other than standard fire
19 policies.
20 Subchapter B. Stock Companies
21 § 5921. Capital of foreign or alien companies.
22 § 5922. Authorized investment of capital.
23 § 5923. Investment of surplus.
24 § 5924. Treasury stock.
25 § 5925. Estimation of surplus for dividends.
26 § 5926. Authorized holdings of real estate.
27 § 5927. Procedure when capital impaired.
28 Subchapter C. Mutual Companies
29 § 5931. Licensing of foreign mutual companies.
30 § 5932. Rechartering of companies.
19850H1962B2642 - 25 -
1 § 5933. Cash premium policies.
2 § 5934. Cash premiums.
3 § 5935. Surplus.
4 Chapter 61. Eligibility for Motor Vehicle Insurance
5 § 6101. Definitions.
6 § 6102. General provisions.
7 § 6103. Insufficient grounds for failure to insure.
8 § 6104. Grounds for cancellation.
9 § 6105. Premium increase or surcharge.
10 § 6106. Notice of refusal.
11 § 6107. Exclusions.
12 § 6108. Information regarding refusal to insure.
13 § 6109. Request for review.
14 § 6110. Review procedure.
15 § 6111. Powers of commissioner.
16 § 6112. Penalty.
17 Chapter 63. Motor Vehicle Financial Responsibility
18 Subchapter A. General Provisions
19 § 6301. Short title of chapter.
20 § 6302. Definitions.
21 § 6303. Applicability of chapter.
22 § 6304. Administration of chapter.
23 Subchapter B. Motor Vehicle Liability Insurance
24 First Party Benefits
25 § 6311. Required benefits.
26 § 6312. Availability of benefits.
27 § 6313. Source of benefits.
28 § 6314. Ineligible claimants.
29 § 6315. Availability of adequate limits.
30 § 6316. Payment of benefits.
19850H1962B2642 - 26 -
1 § 6317. Stacking of benefits.
2 § 6318. Exclusion from benefits.
3 § 6319. Coordination of benefits.
4 § 6320. Subrogation.
5 § 6321. Statute of limitations.
6 § 6322. Preclusion of recovering required benefits.
7 § 6323. Reporting requirements.
8 Subchapter C. Uninsured and Underinsured Motorist Coverage
9 § 6331. Scope and amount of coverage.
10 § 6332. Limits of coverage.
11 § 6333. Priority of recovery.
12 § 6334. Request for lower or higher limits of coverage.
13 § 6335. Workmen's compensation benefits.
14 § 6336. Coverage in excess of required amounts.
15 Subchapter D. Assigned Risk Plan
16 § 6341. Establishment of assigned risk plan.
17 § 6342. Scope of assigned risk plan.
18 § 6343. Rates.
19 § 6344. Termination of policies.
20 Subchapter E. Assigned Claims Plan
21 § 6351. Organization of assigned claims plan.
22 § 6352. Eligible claimants.
23 § 6353. Benefits available.
24 § 6354. Additional coverage.
25 § 6355. Coordination of benefits.
26 § 6356. Subrogation.
27 § 6357. Statute of limitations.
28 Subchapter F. Catastrophic Loss Trust Fund
29 § 6361. Definitions.
30 § 6362. Funding.
19850H1962B2642 - 27 -
1 § 6363. Enforcement.
2 § 6364. Catastrophic Loss Trust Fund.
3 § 6365. Catastrophic Loss Trust Fund Board.
4 § 6366. Benefits.
5 § 6367. Annual reports.
6 § 6368. Appeals.
7 § 6369. Miscellaneous provisions.
8 Subchapter G. Nonpayment of Judgments
9 § 6371. Court reports on nonpayment of judgments.
10 § 6372. Suspension for nonpayment of judgments.
11 § 6373. Duration of suspension.
12 § 6374. Satisfaction of judgments.
13 § 6375. Installment payment of judgments.
14 Subchapter H. Proof of Financial Responsibility
15 § 6381. Notice of sanction for not evidencing financial
16 responsibility.
17 § 6382. Manner of providing proof of financial responsibility.
18 § 6383. Proof of financial responsibility before restoring
19 operating privilege or registration.
20 § 6384. Proof of financial responsibility following violation.
21 § 6385. Proof of financial responsibility following accident.
22 § 6386. Self-certification of financial responsibility.
23 § 6387. Self-insurance.
24 Subchapter I. Miscellaneous Provisions
25 § 6391. Notice of available benefits and limits.
26 § 6392. Availability of certain coverage.
27 § 6393. Premiums.
28 § 6394. Jurisdictional limit on judicial arbitration.
29 § 6395. Insurance fraud reporting immunity.
30 § 6396. Mental or physical examinations.
19850H1962B2642 - 28 -
1 § 6397. Customary charges for treatment.
2 § 6398. Attorney fees and costs.
3 Chapter 65. Credit Insurance
4 § 6501. General provisions.
5 § 6502. Definitions.
6 § 6503. Forms.
7 § 6504. Amount of insurance.
8 § 6505. Term of insurance.
9 § 6506. Disclosure to debtors.
10 § 6507. Review of forms and premium rates.
11 § 6508. Premiums and refunds.
12 § 6509. Issuance of policies.
13 § 6510. Claims.
14 § 6511. Choice of insurer.
15 § 6512. Enforcement.
16 § 6513. Judicial review.
17 § 6514. Penalties.
18 Chapter 67. Title Insurance
19 Subchapter A. General Provisions
20 § 6701. Definitions.
21 § 6702. Applicability of chapter.
22 § 6703. Applicability of other provisions of title.
23 Subchapter B. Business Operations
24 § 6711. Powers of title insurance companies.
25 § 6712. Corporate form.
26 § 6713. Title examination and records.
27 § 6714. Prohibition of guaranteeing mortgages.
28 § 6715. Loss of power to transact title insurance.
29 § 6716. Primary retained liability.
30 § 6717. Power to reinsure.
19850H1962B2642 - 29 -
1 § 6718. Special reinsurance.
2 § 6719. Licensure of foreign or alien insurers.
3 § 6720. Resident agents for foreign or alien insurers.
4 § 6721. Regulation of agents.
5 § 6722. Commissions.
6 § 6723. Mergers and consolidations.
7 § 6724. Other corporate acquisitions.
8 § 6725. Change in corporate control.
9 Subchapter C. Investment and Reserves
10 § 6731. Financial requirements.
11 § 6732. Procedure when capital impaired.
12 § 6733. Unearned premium reserve.
13 § 6734. Amount of unearned premium reserve.
14 § 6735. Maintenance of unearned premium reserve.
15 § 6736. Use of unearned premium reserve.
16 § 6737. Reserves for unpaid losses and loss expenses.
17 § 6738. Investment of capital.
18 § 6739. Investment of surplus.
19 § 6740. Investment of unearned premium reserve.
20 § 6741. Other reserves.
21 Subchapter D. Rate Regulation
22 § 6751. Rate filing.
23 § 6752. Justification for rates.
24 § 6753. Making of rates.
25 § 6754. Disapproval of filings.
26 § 6755. Rating organizations.
27 § 6756. Deviations.
28 § 6757. Appeals by minority.
29 § 6758. Information to be furnished insureds.
30 § 6759. Hearings and appeals of insureds.
19850H1962B2642 - 30 -
1 § 6760. Examination of rating organizations.
2 § 6761. Recording and reporting of loss and expense experience.
3 § 6762. False or misleading information.
4 Subchapter E. Penalties and Procedures
5 § 6771. Penalties.
6 § 6772. Hearing procedure.
7 Chapter 69. Health and Accident Insurance
8 Subchapter A. Preliminary Provisions
9 § 6901. Definitions.
10 § 6902. Organizations included.
11 § 6903. Applicability.
12 § 6904. Nonconforming policies.
13 § 6905. Penalties.
14 Subchapter B. General Requirements
15 § 6911. Approval of policies by commissioner.
16 § 6912. Formal requirements.
17 § 6913. Mandatory policy provisions.
18 § 6914. Optional policy provisions.
19 § 6915. Relationship of policy provisions.
20 § 6916. Coverage of certain services.
21 § 6917. Coverage of newborn children.
22 § 6918. Licensed medical treatment.
23 § 6919. Services of nurse midwives.
24 § 6920. Age limits.
25 § 6921. Cost-of-living increases.
26 § 6922. Applications for insurance.
27 § 6923. Preservation of rights of insurer.
28 § 6924. Discrimination.
29 Subchapter C. Group, Blanket and Franchise Policies
30 § 6931. Definitions.
19850H1962B2642 - 31 -
1 § 6932. Required provisions for group health and accident
2 policies.
3 § 6933. Provision for direct payment.
4 § 6934. Conversion privileges.
5 § 6935. Blanket health and accident insurance.
6 § 6936. Companies authorized to write policies.
7 Subchapter D. Minimum Standards for Individual Policies
8 § 6941. Short title of subchapter.
9 § 6942. Standards for policy provisions.
10 § 6943. Minimum standards for benefits.
11 § 6944. Outline of coverage.
12 § 6945. Preexisting conditions.
13 § 6946. Procedure regarding regulations.
14 Subchapter E. Medicare Supplement Insurance
15 § 6951. Short title of subchapter.
16 § 6952. Definitions.
17 § 6953. Definitions in Medicare supplement policies.
18 § 6954. Prohibited policy provisions.
19 § 6955. Minimum benefit standards.
20 § 6956. Loss ratio standards.
21 § 6957. Required disclosures.
22 § 6958. Requirements for replacement.
23 § 6959. Regulations.
24 § 6960. Applicability of mandated coverages.
25 § 6961. Applicability of subchapter.
26 Chapter 71. Health Care Services Malpractice
27 Subchapter A. General Provisions
28 § 7101. Short title of chapter.
29 § 7102. Purpose of chapter.
30 § 7103. Definitions.
19850H1962B2642 - 32 -
1 § 7104. Exemptions.
2 § 7105. Liability of nonqualifying health care providers.
3 § 7106. Informed consent.
4 § 7107. Official immunity.
5 § 7108. Cancellation of insurance policies.
6 Subchapter B. Arbitration Panels for Health Care
7 § 7111. Administrator for arbitration panels.
8 § 7112. Powers and duties of administrator.
9 § 7113. Arbitration panels for health care.
10 Subchapter C. Procedure in Malpractice Cases
11 § 7121. Jurisdiction of arbitration panel.
12 § 7122. Procedure for filing claims.
13 § 7123. Hearings and determinations.
14 § 7124. Transfer to court.
15 § 7125. Service of papers.
16 § 7126. Applicability of other law.
17 § 7127. Appointment of expert witnesses.
18 § 7128. Powers and duties of panels.
19 § 7129. Notice of award.
20 § 7130. Judicial review.
21 § 7131. Judgments.
22 § 7132. Advance payments.
23 § 7133. Submission of findings to licensing boards.
24 § 7134. Reduction of award by other benefits.
25 § 7135. Award of punitive damages.
26 § 7136. Attorney fees.
27 Subchapter D. Medical Professional Liability Catastrophe
28 Loss Fund
29 § 7141. Professional liability insurance.
30 § 7142. Medical Professional Liability Catastrophe Loss Fund.
19850H1962B2642 - 33 -
1 § 7143. Administration of fund.
2 § 7144. Liability of excess carriers.
3 § 7145. Licensure penalties.
4 Subchapter E. Availability of Insurance
5 § 7151. Plan to assure availability of insurance.
6 § 7152. Participation in plan.
7 § 7153. Plan operation, rates and deficits.
8 § 7154. Authority of commissioner.
9 § 7155. Financing and payment of premiums.
10 § 7156. Selection of insurer to administer plan.
11 § 7157. Approval of policies on claims made basis.
12 § 7158. Annual reports to commissioner.
13 § 7159. Studies and recommendations.
14 § 7160. Coverage by joint underwriting association.
15 § 7161. Applicability of certain provisions.
16 Subchapter F. Disciplinary Proceedings
17 § 7171. Investigations.
18 § 7172. Hearings.
19 § 7173. Decisions of hearing examiners.
20 § 7174. Evidence.
21 § 7175. Review and decision by licensing boards.
22 § 7176. Disposition of certain moneys.
23 Subchapter G. Miscellaneous Provisions
24 § 7181. Existing contract provisions.
25 § 7182. Joint committee.
26 Chapter 73. Health Maintenance Organizations
27 Subchapter A. General Provisions
28 § 7301. Short title of chapter.
29 § 7302. Purpose of chapter.
30 § 7303. Definitions.
19850H1962B2642 - 34 -
1 § 7304. Applicability of chapter.
2 § 7305. Applicability of other law.
3 § 7306. Exemption from taxation.
4 § 7307. Regulations.
5 Subchapter B. Operation and Regulation
6 § 7321. Scope of authorization.
7 § 7322. Certificates of authority.
8 § 7323. Foreign health maintenance organizations.
9 § 7324. Filing of rates and contract forms.
10 § 7325. Reports and examinations.
11 § 7326. Contracts.
12 § 7327. Services performed outside service area.
13 § 7328. Additional requirements.
14 § 7329. Penalties.
15 Chapter 74. Continuing Care Providers
16 § 7401. Short title of chapter.
17 § 7402. Purpose of chapter.
18 § 7403. Definitions.
19 § 7404. Certificates of authority.
20 § 7405. Revocation of certificate of authority.
21 § 7406. Sales or transfers of ownership.
22 § 7407. Disclosure statements.
23 § 7408. False information.
24 § 7409. Reserves.
25 § 7410. Reserve fund escrow.
26 § 7411. Liens on behalf of residents.
27 § 7412. Entrance fee escrow.
28 § 7413. Cross-collateralization.
29 § 7414. Residents' agreements.
30 § 7415. Organizational rights of residents.
19850H1962B2642 - 35 -
1 § 7416. Rehabilitation or liquidation.
2 § 7417. Civil liability.
3 § 7418. Investigations and compulsory process.
4 § 7419. Audits.
5 § 7420. Consumers' guides.
6 § 7421. Civil relief from violations.
7 § 7422. Criminal penalties.
8 § 7423. Fees and expenses.
9 § 7424. Compliance period.
10 Chapter 75. Hospital Plan Corporations
11 Subchapter A. Preliminary Provisions
12 § 7501. Definitions.
13 § 7502. Applicability.
14 § 7503. Penalties.
15 Subchapter B. Certification
16 § 7511. Certification of hospital plan corporations.
17 § 7512. Exemptions for hospital plan corporations.
18 § 7513. Uncertified plans.
19 Subchapter C. Regulation
20 § 7521. Eligible hospitals.
21 § 7522. Action as agent under Federal and other programs.
22 § 7523. Investment of funds.
23 § 7524. Rates and contracts.
24 § 7525. Reports and examinations.
25 § 7526. Solicitors and agents.
26 § 7527. Dissolution or liquidation.
27 Chapter 77. Professional Health Services Plan Corporations
28 Subchapter A. Preliminary Provisions
29 § 7701. Applicability of chapter.
30 § 7702. Definitions.
19850H1962B2642 - 36 -
1 § 7703. Purpose of chapter.
2 § 7704. Penalties.
3 § 7705. Enforcement.
4 Subchapter B. Certification
5 § 7711. Certification of professional health service
6 corporations.
7 § 7712. Initial reserves.
8 § 7713. Incorporators.
9 § 7714. Exemptions for professional health service
10 corporations.
11 § 7715. Uncertificated plans.
12 Subchapter C. Regulation Generally
13 § 7721. Required reserves.
14 § 7722. Scope of service.
15 § 7723. Action as agent under Federal and other programs.
16 § 7724. Health service doctors.
17 § 7725. Eligibility determination.
18 § 7726. Authorized contract provisions.
19 § 7727. Subscriptions provided by government agencies.
20 § 7728. Board of directors.
21 § 7729. Rates and contracts.
22 § 7730. Investment of funds.
23 § 7731. Reports and examinations.
24 § 7732. Regulation by Department of Health.
25 § 7733. Dental service agents.
26 § 7734. Dissolution or liquidation.
27 § 7735. Ancillary health services.
28 Chapter 79. Surety Companies
29 § 7901. Corporate sureties.
30 § 7902. Conditions for doing business.
19850H1962B2642 - 37 -
1 § 7903. Certificates of authority.
2 § 7904. Annual statements.
3 § 7905. Power to execute obligations.
4 § 7906. Liability of companies.
5 § 7907. Guaranteed arrest bond certificates.
6 Chapter 81. Property and Casualty Insurance Guaranty
7 Association
8 Subchapter A. General Provisions
9 § 8101. Short title of chapter.
10 § 8102. Purposes of chapter.
11 § 8103. Definitions.
12 § 8104. Immunity.
13 § 8105. References to association in advertising.
14 Subchapter B. Pennsylvania Insurance Guaranty
15 Association
16 § 8111. Pennsylvania Insurance Guaranty Association.
17 § 8112. Plan of operation.
18 § 8113. Examination of association.
19 § 8114. Annual and other statements.
20 § 8115. Limitation on taxability of association.
21 Subchapter C. Assessments
22 § 8121. Assessments.
23 § 8122. Refunds.
24 § 8123. Recognition of assessments in rates.
25 § 8124. Assessments of other states.
26 Subchapter D. Powers and Duties of Commissioner
27 § 8131. Powers and duties of commissioner.
28 Subchapter E. Recovery Procedure
29 § 8141. Notice of claims.
30 § 8142. Effect of paid claims.
19850H1962B2642 - 38 -
1 § 8143. Duplication of recovery.
2 § 8144. Proceedings involving insolvent insurers.
3 Chapter 83. Life and Health Insurance Guaranty Association
4 Subchapter A. General Provisions
5 § 8301. Short title of chapter.
6 § 8302. Purpose of chapter.
7 § 8303. Applicability.
8 § 8304. Definitions.
9 § 8305. Immunity.
10 § 8306. References to association in advertising.
11 Subchapter B. Organization of Association
12 § 8311. Pennsylvania Life and Health Insurance Guaranty
13 Association.
14 § 8312. Board of directors.
15 § 8313. Powers and duties of association.
16 § 8314. Plan of operation.
17 § 8315. Tax exemption.
18 Subchapter C. Assessments
19 § 8321. Assessments.
20 § 8322. Tax credits for assessments paid.
21 § 8323. Assessments of other states.
22 § 8324. Relation to Pennsylvania Insurance Guaranty
23 Association.
24 Subchapter D. Powers and Duties of Commissioner
25 § 8331. Powers and duties of commissioner.
26 Subchapter E. Impaired and Insolvent Insurers
27 § 8341. Prevention of insolvencies.
28 § 8342. Affairs of impaired and insolvent insurers.
29 § 8343. Proceedings involving insolvent insurers.
30 § 8344. Timely filing of claims.
19850H1962B2642 - 39 -
1 § 8345. Duplication of recovery.
2 Chapter 85. Insurance Premium Finance Companies
3 Subchapter A. General Provisions
4 § 8501. Short title of chapter.
5 § 8502. Definitions.
6 Subchapter B. Licensure
7 § 8511. Licensure requirement.
8 § 8512. Issuance and renewal of license.
9 § 8513. Revocation or suspension of license.
10 Subchapter C. Regulation
11 § 8521. Books and records of licensee.
12 § 8522. Form of agreement.
13 § 8523. Limitations on interest and other charges.
14 § 8524. Delinquency and cancellation charges.
15 § 8525. Cancellation of insurance contract upon default.
16 § 8526. Return of premiums.
17 § 8527. Secured transactions.
18 § 8528. Penalties for violation.
19 The General Assembly of the Commonwealth of Pennsylvania
20 hereby enacts as follows:
21 Section 1. Title 40 and Chapter 17 of Title 75 of the
22 Pennsylvania Consolidated Statutes are repealed.
23 Section 2. Title 40 is amended by adding parts to read:
24 TITLE 40
25 INSURANCE
26 Part
27 I. Preliminary Provisions
28 II. Regulation of Insurers and Related Persons Generally
29 III. Organization of Insurance Entities
30 IV. Special Provisions Relating to Particular Classes of Risk
19850H1962B2642 - 40 -
1 PART I
2 PRELIMINARY PROVISIONS
3 Chapter
4 1. General Provisions
5 CHAPTER 1
6 GENERAL PROVISIONS
7 Sec.
8 101. Short title of title.
9 102. Definitions.
10 § 101. Short title of title.
11 This title shall be known and may be cited as the Insurance
12 Code.
13 § 102. Definitions.
14 Subject to additional definitions contained in subsequent
15 provisions of this title which are applicable to specific
16 provisions of this title, the following words and phrases when
17 used in this title shall have the meanings given to them in this
18 section unless the context clearly indicates otherwise:
19 "Alien." Incorporated or organized under the law of another
20 country.
21 "Association." An individual, partnership or association of
22 individuals authorized to engage in the business of insurance in
23 this Commonwealth as insurers on the Lloyds plan.
24 "Authorized." Having authority under this title to engage in
25 this Commonwealth in the class of insurance specified in the
26 authorization.
27 "Certificate of authority." An instrument in writing issued
28 by the department authorizing an insurer or proposed insurer to
29 engage in the business of insurance, or some specified class
30 thereof, in this Commonwealth.
19850H1962B2642 - 41 -
1 "Commissioner." The Insurance Commissioner of the
2 Commonwealth.
3 "Company." An insurance corporation or title insurance
4 corporation whether incorporated under the laws of this
5 Commonwealth, or of any other State, or under the laws of any
6 foreign country.
7 "Corporation not-for-profit." A corporation not-for-profit
8 as defined in Title 15 (relating to corporations and
9 unincorporated associations).
10 "Department." The Insurance Department of the Commonwealth.
11 "Domestic." Incorporated or organized under the law of this
12 Commonwealth.
13 "Entity." A company, association or exchange.
14 "Exchange." An individual, partnership or corporation
15 authorized by the laws of this Commonwealth to exchange inter-
16 insurance or reciprocal insurance contracts.
17 "Foreign." Incorporated or organized under the law of
18 another state.
19 "Regulation." A regulation as defined in 45 Pa.C.S. § 501
20 (relating to definitions).
21 PART II
22 REGULATION OF INSURERS AND RELATED
23 PERSONS GENERALLY
24 Chapter
25 3. General Provisions
26 5. Insurance Department
27 7. Reserve Liability
28 9. Deposits of Securities to do Interstate Business
29 11. Agents and Brokers
30 13. Unlicensed Insurers
19850H1962B2642 - 42 -
1 15. Unfair Insurance Practices
2 17. Reporting Requirements
3 19. Insurance Rates
4 21. Reciprocal and Inter-Insurance Exchanges
5 23. Lloyds Associations
6 CHAPTER 3
7 GENERAL PROVISIONS
8 Sec.
9 301. Definitions (Reserved).
10 302. Applicability of part.
11 303. Compliance with part.
12 304. Regulations.
13 § 301. Definitions (Reserved).
14 § 302. Applicability of part.
15 (a) General rule.--The provisions of this part shall apply
16 to all entities transacting any class of insurance business, to
17 rating organizations and to all insurance agents and insurance
18 brokers.
19 (b) Fraternal benefit societies.--Except for sections 514
20 (relating to records and report of department), 709 (relating to
21 valuation of securities) and 1107 (relating to penalty for
22 soliciting for nonexistent company) and Chapter 39 (relating to
23 suspension of business and dissolution), this part does not
24 apply to fraternal benefit societies, orders or associations
25 conducted not for profit, and having a lodge system with
26 ritualistic form of work and representative form of government,
27 or to beneficial or relief associations conducted not for profit
28 formed by churches, societies, classes, firms or corporations,
29 with or without ritualistic form of work, the privilege of
30 membership in which is confined to the members of such churches,
19850H1962B2642 - 43 -
1 societies or classes, and to members and employees of such firms
2 or corporations.
3 (c) Mutual fire insurance companies.--Except for sections
4 511 (relating to examination of companies), 512 (relating to
5 powers with regard to examinations) and 514 and Chapter 39, this
6 part does not apply to incorporated domestic mutual fire
7 insurance companies with unlimited or limited liability to
8 assessment for payment of expenses and of losses and loss
9 adjustments, set forth in the policy contract or in the
10 promissory notes attached thereto.
11 § 303. Compliance with part.
12 A person shall not negotiate, solicit or execute any contract
13 of insurance in this Commonwealth, receive and transmit any
14 offer of insurance, receive or deliver a policy of insurance or
15 aid in the transaction of the business of insurance without
16 fully complying with this part.
17 § 304. Regulations.
18 The commissioner shall prescribe those regulations that may
19 be reasonably necessary for the exercise of its powers and
20 performance of its duties under this title and for the
21 administration of the department.
22 CHAPTER 5
23 INSURANCE DEPARTMENT
24 Sec.
25 501. Establishment of department.
26 502. Appointment of commissioner.
27 503. Restrictions on officers and employees.
28 504. Seal.
29 505. Certified documents and copies.
30 506. Certificates of authority to do business.
19850H1962B2642 - 44 -
1 507. Penalty for acting without authority.
2 508. Fees.
3 509. Assessments for expenses of Committee on Valuation of
4 Securities.
5 510. Additional restrictions of other states.
6 511. Examination of companies.
7 512. Powers with regard to examinations.
8 513. Collection of taxes, fines and penalties.
9 514. Records and report of department.
10 § 501. Establishment of department.
11 The Insurance Department shall be the executive agency
12 charged with the execution of the laws relating to insurance.
13 § 502. Appointment of commissioner.
14 The Governor, with the advice and consent of the Senate,
15 shall appoint an Insurance Commissioner, who shall hold office
16 for the term of four years and until his successor is appointed
17 and qualified.
18 § 503. Restrictions on officers and employees.
19 An officer or employee of the department shall not be
20 employed by or be pecuniarily interested in any insurance entity
21 or in any insurance business, other than as a policyholder.
22 § 504. Seal.
23 The commissioner shall adopt and renew, from time to time, a
24 seal of office, an impression of which shall be filed in the
25 office of the Secretary of the Commonwealth.
26 § 505. Certified documents and copies.
27 (a) Certificates of authority.--The commissioner shall
28 furnish, under seal of the department, when required for
29 evidence in court, certificates relative to the authority of an
30 entity, agent or broker to transact business in this
19850H1962B2642 - 45 -
1 Commonwealth upon any particular date, and the certificate shall
2 be competent evidence thereof.
3 (b) Certified copies of documents.--The commissioner shall,
4 at the request of any person and on payment of the fee, give
5 certified copies of any charter, statement or record filed in
6 his office, whenever he deems it not prejudicial to the public
7 interest. These certified copies shall be admissible in evidence
8 in judicial and administrative proceedings.
9 § 506. Certificates of authority to do business.
10 (a) General rule.--A foreign or alien insurance entity shall
11 not do an insurance business in this Commonwealth without first
12 having obtained a certificate of authority from the commissioner
13 authorizing it to do such business. Before granting the
14 certificate of authority to an insurance entity, the
15 commissioner shall be satisfied, by such examination as he may
16 make or by such evidence as he may require, that the entity
17 conforms to the requirements of this title. After such issue,
18 the holder shall continue to comply with the requirements of
19 this title.
20 (b) Renewal.--The commissioner may renew the certificate of
21 authority of any mutual assessment life or accident association,
22 which is now lawfully doing business in this Commonwealth,
23 beginning on April 1 of each year, and continuing in force for
24 one year unless sooner revoked by him or surrendered by the
25 licensee. Any certificates issued after April 1 shall expire on
26 March 31 succeeding.
27 (c) Doing insurance business.--Any of the following acts
28 constitute the doing of an insurance business in this
29 Commonwealth:
30 (1) The issuance or delivery of contracts of insurance
19850H1962B2642 - 46 -
1 to persons resident in this Commonwealth.
2 (2) The solicitation of applications for such contracts
3 or other negotiations preliminary to execution of such
4 contracts.
5 (3) The collection of premiums, membership fees,
6 assessments or other consideration for such contracts.
7 (4) The transaction of matters subsequent to execution
8 of such contracts and arising out of them.
9 (d) Action for injunction.--Whenever the commissioner
10 believes, from evidence satisfactory to him, that any insurance
11 entity is doing an insurance business in this Commonwealth in
12 violation of any provision of this title or any order or
13 requirement of the commissioner issued or promulgated pursuant
14 to authority expressly granted the commissioner by law, or is
15 about to violate any such provision, order or requirement, the
16 commissioner may, after approval by the Attorney General, bring
17 an action for an injunction. This remedy is in addition to any
18 other remedy provided by law.
19 (e) Appointment of commissioner.--The performance by a
20 foreign or alien insurance entity of any act which constitutes
21 the doing of an insurance business in this Commonwealth shall be
22 deemed an appointment by the entity of the Secretary of the
23 Commonwealth as its true and lawful attorney upon whom may be
24 served all lawful process in any action, suit or proceeding
25 instituted by or on behalf of the commissioner against it
26 arising out of a violation of this section and shall signify its
27 consent that such service of process shall have the same legal
28 force and validity as personal service of process in this
29 Commonwealth upon it.
30 (f) Service of process on Secretary of the Commonwealth.--
19850H1962B2642 - 47 -
1 Service of process shall be made by delivering to and leaving
2 with the Secretary of the Commonwealth two copies thereof. The
3 Secretary shall immediately send, by registered mail, one of the
4 copies of such process to the entity at its last known principal
5 place of business and shall keep a record of all process so
6 served upon him. Notice of service upon the Secretary and a copy
7 of the process shall be sent within ten days thereafter, by
8 registered mail, by or on behalf of the commissioner to the
9 entity at its last known principal place of business. The
10 receipt of the entity or the receipt issued by the post office
11 with which the notice is registered showing the name of the
12 sender of the notice and the name and address of the entity to
13 whom the notice is addressed, and the affidavit of or on behalf
14 of the commissioner showing a compliance herewith, shall be
15 filed with the prothonotary or clerk of the court on or before
16 the date the entity is required to answer or within such further
17 time as the court may allow.
18 (g) Personal service.--Service of process in any action or
19 proceeding under this section shall, in addition to the manner
20 provided in subsection (f), be valid if served upon any person
21 in this Commonwealth who on behalf of the entity is: soliciting
22 insurance, making, issuing or delivering any contract of
23 insurance, or collecting or receiving any premium, membership
24 fee, assessment or other consideration for insurance. Notice of
25 the service and a copy of the process shall be sent within ten
26 days after such service by registered mail by the commissioner
27 to the entity at its last known principal place of business. The
28 return receipt from the entity or the receipt issued by the post
29 office with which the notice is registered, showing the name of
30 the sender of the notice and the name and address of the entity
19850H1962B2642 - 48 -
1 to whom the notice is addressed, and the affidavit of the
2 commissioner showing a compliance with this subsection shall be
3 filed with the prothonotary or clerk of the court on or before
4 the date the entity is required to answer or within such further
5 time as the court may allow.
6 (h) Bond.--Before any foreign or alien entity files any
7 pleading in any action or proceeding instituted against it under
8 this section, the entity shall, if the court requires, deposit
9 with the prothonotary of the court cash or securities or file
10 with the prothonotary a bond with good and sufficient sureties
11 approved by the court. The deposit or bond shall be in the
12 amount approved by the court, taking into account all relevant
13 circumstances, including the financial condition of the entity,
14 as sufficient to secure the payment of any final judgment which
15 may be rendered in such action or proceeding.
16 (i) Time to respond.--A judgment by default or otherwise
17 shall not be entered in any action or proceeding under this
18 section until the expiration of 30 days from the date of the
19 filing of the affidavit of compliance as set forth in subsection
20 (f) or (g).
21 (j) Other procedures for service.--This section does not
22 limit or abridge the right to serve any process, notice or
23 demand upon any foreign or alien entity in any manner permitted
24 by law.
25 (k) Exclusions.--This section does not apply to the
26 following:
27 (1) Transactions regulated by Chapter 13 (relating to
28 unlicensed insurers).
29 (2) Life insurance or annuities provided to educational
30 or scientific institutions organized and operated without
19850H1962B2642 - 49 -
1 profit to any private shareholder or individual for the
2 benefit of the institutions and individuals engaged in the
3 service of the institutions.
4 (3) Contracts of reinsurance.
5 (4) Transactions in this Commonwealth which involve a
6 policy lawfully solicited, written and delivered outside this
7 Commonwealth covering only subjects of insurance not
8 resident, located or expressly to be performed in this
9 Commonwealth at the time of issuance of the policy and
10 subsequent to the issuance of the policy.
11 (5) Transactions in this Commonwealth, except group
12 credit life or group credit accident and health insurance
13 transactions, involving group or blanket insurance policies
14 or group annuity contracts, where the group policy or
15 contract is issued and delivered pursuant to the group or
16 blanket insurance or group annuity laws of a jurisdiction in
17 which the insurer is authorized to do an insurance business
18 and in which the policyholder is domiciled or has its
19 principal place of business or otherwise has a situs.
20 (6) Transactions in this Commonwealth, except group
21 credit life or group credit accident and health insurance
22 transactions, involving a group or blanket insurance policy
23 or group annuity contract not exempt under paragraph (5), if:
24 (i) they involve a group which conforms to one of
25 the definitions of eligibility for group coverage
26 contained in this title; and
27 (ii) the group policy or contract is lawfully issued
28 outside this Commonwealth in a jurisdiction in which the
29 insurer is authorized to do insurance business.
30 The insurer claiming exemption under this paragraph has the
19850H1962B2642 - 50 -
1 burden of demonstrating compliance with the conditions of
2 this paragraph.
3 (7) Any industrial insured, insurance company or
4 underwriter issuing contracts of insurance to industrial
5 insureds or any contract of insurance issued to an industrial
6 insured. This paragraph does not exempt any industrial
7 insured from Chapter 13. As used in this paragraph the term
8 "industrial insured" means an insured who procures the
9 insurance of any risk by use of the services of a full-time
10 employee acting as an insurance manager or buyer or the
11 services of a regularly and continuously retained qualified
12 insurance consultant, whose aggregate annual premiums for
13 insurance on all risks total at least $25,000 and who has at
14 least 25 full-time employees.
15 (8) Transactions in this Commonwealth involving a policy
16 of insurance issued prior to July 31, 1968.
17 (9) Insurance on the property and operation of railroads
18 or aircraft engaged in interstate or foreign commerce.
19 (10) Insurance on vessels, crafts or hulls, cargoes,
20 marine builder's risks, marine protection and indemnity,
21 lessees' and charterers' liability, or other risks, including
22 strikes and war risks commonly insured under ocean or wet
23 marine forms of policies.
24 § 507. Penalty for acting without authority.
25 (a) Entities.--Any insurance entity doing an insurance
26 business in this Commonwealth without a certificate of authority
27 as required by this chapter shall pay a civil penalty of not
28 less than $1,000 nor more than $10,000 for each offense, to be
29 recovered on behalf of the Commonwealth.
30 (b) Persons.--Any person negotiating or soliciting any
19850H1962B2642 - 51 -
1 policy of insurance or suretyship in this Commonwealth,
2 collecting or forwarding premiums or delivering policies for any
3 entity to which a certificate of authority has not been granted
4 shall be deemed to be the agent of the entity in any legal
5 proceedings brought against it. The person shall pay a civil
6 penalty of not less than $1,000 nor more than $10,000 for each
7 offense, to be recovered on behalf of the Commonwealth.
8 (c) Exceeding authority.--Any insurance entity doing an
9 insurance business in this Commonwealth, which exceeds the
10 powers granted under a certificate of authority, shall pay to
11 the Commonwealth a sum of not more than $500 for each policy
12 issued in violation of this chapter.
13 (d) Hearing and notice.--Before the commissioner takes any
14 action under this section, he shall give written notice to the
15 entity or person accused of violating the law, stating the
16 nature of the alleged violation and fixing a time and place, at
17 least ten days thereafter, when a hearing of the matter shall be
18 held. After the hearing or the failure of the respondent to
19 appear at the hearing, the commissioner shall impose such
20 penalty as he deems advisable.
21 § 508. Fees.
22 (a) General rule.--The commissioner shall charge and collect
23 fees as provided under this title or under section 612-A of the
24 act of April 9, 1929 (P.L.177, No.175), known as The
25 Administrative Code of 1929. All fees collected shall be paid
26 daily into the State Treasury.
27 (b) Biennial licenses.--The commissioner may issue licenses
28 for a period of two years at two times the annual fees
29 established by law. One-half of any fee collected shall be
30 refunded or be credited to the account of the payor entitled to
19850H1962B2642 - 52 -
1 the refund if the license is canceled within 12 months of its
2 inception date or within 12 months of its effective date as
3 certified to the commissioner by insurance entities authorized
4 by law to transact business in this Commonwealth.
5 § 509. Assessments for expenses of Committee on Valuation of
6 Securities.
7 (a) Authority of commissioner.--The commissioner may
8 contract with the Committee on Valuation of Securities of the
9 National Association of Insurance Commissioners to make
10 available to the department the analyses, reports and
11 information developed by the committee with respect to the
12 investigation, analyses and valuation of securities and the
13 determination of the amortizability of bonds owned by insurance
14 companies. After taking into consideration similar payments
15 which may be made by other states, he may make payment therefor
16 to the committee to the extent authorized in this section, on
17 account of the expenses of the committee, from funds obtained
18 through assessments under this section.
19 (b) Information from committee.--The commissioner shall
20 periodically obtain from the committee a verified budget
21 estimate of the receipts and of the expenses to be incurred by
22 the committee for a stated period not exceeding one year with
23 appropriate explanations of the estimates. The commissioner
24 shall require annually, and at such other times as he may deem
25 it necessary or advisable, a duly certified audit of receipts
26 and disbursements and statement of assets and liabilities
27 showing the details of the financial operations of the
28 committee.
29 (c) Method of assessment.--If the commissioner is satisfied
30 as to the reasonableness of the committee's budget estimate, he
19850H1962B2642 - 53 -
1 shall determine the portion of the funds required by the budget
2 estimate, to be assessed as provided in this section, by
3 deducting from the budget estimate or from the sum of $250,000,
4 whichever is less, any amounts received or receivable by the
5 committee from other states whose laws do not substantially
6 conform to the method of assessment provided in this section,
7 and applying to the remainder the proportion which the total
8 investments in securities of domestic life insurers bear to the
9 total investments in securities of life insurers domiciled in
10 this and other states whose laws authorize and require
11 assessments on substantially the same base as provided in this
12 section. The commissioner shall thereafter, as soon as
13 convenient, by notice stating the method of computation thereof,
14 assess the amount to be paid on account of such expense pro rata
15 upon all domestic life insurers in the proportion which the
16 total investments in securities of each domestic life insurer
17 bears to the total investments in securities of all such
18 insurers. The aggregate amount assessed upon all domestic life
19 insurers pursuant to this section in any one year shall not
20 exceed an amount determined by applying to the "remainder,"
21 referred to in the first sentence of this subsection, the
22 proportion which the total investments in securities of domestic
23 life insurers bear to 75% of the total investments in securities
24 of all life insurers domiciled in all the states of the United
25 States and the District of Columbia. For purposes of this
26 section, the total investments in securities of any life
27 insurer, shall be the total admitted value of stock and bonds
28 reported as such in its annual statement last filed prior to the
29 assessment with the department or with the supervisory official
30 of its state of domicile. Upon receipt of the notice, each
19850H1962B2642 - 54 -
1 insurer shall, within 30 days, pay the assessment to the
2 commissioner. The commissioner shall deposit all moneys
3 collected by him pursuant to this section in an account entitled
4 "Insurance Commissioner Security Valuation Expense Account" in a
5 bank or trust company in this Commonwealth. The moneys shall be
6 paid by the commissioner to the Committee on Valuation of
7 Securities after audit by the Auditor General.
8 § 510. Additional restrictions of other states.
9 (a) General rule.--If any other state or a foreign
10 government imposes any burdens or prohibitions on insurance
11 companies, or agents of this Commonwealth doing business
12 therein, which are in addition to or in excess of the burdens or
13 prohibitions imposed by the Commonwealth on insurance companies
14 and agents, similar burdens and prohibitions shall be imposed on
15 all insurance companies and agents of the other state or foreign
16 government doing business in this Commonwealth so long as these
17 burdens and prohibitions remain in force. Foreign or alien
18 insurance companies shall not be required to pay any taxes and
19 fees which are greater in aggregate amount than those which
20 would be imposed by the law of the other state or foreign
21 country or any political subdivision thereof upon an insurance
22 company of this Commonwealth transacting the same volume and
23 kind of business in the foreign state or country.
24 (b) Motor vehicle insurance.--If any other state or foreign
25 country requires additional or other insurance covering
26 motorists, or motor vehicles that are insured by domestic
27 insurance companies, or in authorized insurance companies of
28 other states in order to use the highways of the other state or
29 foreign country, similar insurance shall be required to cover
30 all motorists and motor vehicles of the other state or foreign
19850H1962B2642 - 55 -
1 country using the highways of this Commonwealth so long as the
2 requirement of the other state or foreign country remain in
3 force.
4 (c) Monopolistic funds.--The existence of a monopolistic
5 state fund for the writing of any class of insurance in any
6 state or foreign country shall not be deemed a reason to deny to
7 an entity of that state or foreign country a license to transact
8 such classes of insurance in this Commonwealth.
9 (d) Definitions.--As used in this section the following
10 words and phrases shall have the meanings given to them in this
11 subsection:
12 "Agent." An insurance agent, insurance broker, public
13 adjuster or public adjusters' solicitor.
14 "Burdens or prohibitions." Taxes, fines, penalties,
15 licenses, fees, rules, regulations, obligations and
16 prohibitions, including prohibitions against writing particular
17 kinds of insurance by insurance companies, and restrictions on
18 the payment or division of commissions to or with insurance
19 agents or brokers licensed under the law of this Commonwealth.
20 § 511. Examination of companies.
21 (a) Power of commissioner.--The commissioner shall require
22 every domestic insurance entity to keep its books, records,
23 accounts, vouchers, portfolios and transactions in such manner
24 that he may readily verify its annual quarterly and monthly
25 statements and ascertain whether the entity has complied with
26 the provisions of law. He shall, without notice, at least once
27 every year during the first five years of existence of every
28 domestic insurance entity, and thereafter every four years or
29 more often thoroughly examine the affairs of each domestic
30 insurance entity to ascertain its financial condition, its
19850H1962B2642 - 56 -
1 ability to fulfill its obligations, its compliance with law, the
2 equity of its plans, its dealings with its policyholders and
3 claimants and any other facts relating to its business methods
4 and management. In the course of conducting this examination, he
5 may compel the attendance of officers, directors, trustees or
6 members of any domestic insurance entity or examine any foreign
7 or alien insurance entity applying for admission or already
8 admitted to do business in this Commonwealth. In lieu of this
9 examination, the commissioner may accept the report of
10 examination made by or upon the authority of the supervising
11 official of any other state.
12 (b) Report.--The commissioner shall prepare a report of the
13 examination of any domestic insurance entity immediately upon
14 completion of his examination. He shall submit the report to the
15 domestic insurance entity examined, which may object to any part
16 of the report within 30 days from the receipt thereof. If any
17 objection is made, the commissioner shall grant a hearing to the
18 organization examined before making the report available for
19 public inspection. Thereafter, he may publish the report or the
20 results of the examination as contained therein in one or more
21 newspapers in this Commonwealth.
22 (c) Corporations.--The commissioner may examine into the
23 affairs of any domestic or foreign corporation doing business in
24 this Commonwealth which is engaged in, or is claiming or
25 advertising that it is engaged in, organizing or receiving
26 subscriptions for or disposing of stocks of, or in any manner
27 taking part in the formation or in the business of, an insurance
28 entity, either as agent or otherwise, or which is holding the
29 capital stock of one or more insurance companies for the purpose
30 of controlling the management thereof as voting trustees or
19850H1962B2642 - 57 -
1 otherwise.
2 § 512. Powers with regard to examinations.
3 For the purpose of the examination under section 511
4 (relating to examination of companies), the commissioner shall
5 have free access to all the books and papers of any entity which
6 relate to its business, and to the books and papers kept by any
7 of its agents, and may summon, and administer the oath to, and
8 examine as witnesses, the directors, officers, agents and
9 trustees of the entity and any other person. He shall publish
10 the result of his examination of the affairs of any entity if he
11 deems it in the interest of the policyholders to do so. All
12 expenses incurred in the course of the examination, including
13 compensation of the deputies, examiners and other employees of
14 the department assisting in the examination, shall be charged to
15 the entity examined in equitable proportions at such times and
16 in such manner as the commissioner shall by rule or regulation
17 prescribe.
18 § 513. Collection of taxes, fines and penalties.
19 The taxes imposed under this title shall be collected by the
20 Department of Revenue. The fines and penalties imposed by the
21 commissioner shall, in case of failure to pay after notice from
22 the commissioner, be collected as taxes upon corporations or
23 individuals are now collected by law. The commissioner shall
24 have the powers conferred by law upon the Department of Revenue
25 in the settlement of accounts, for purposes of collecting these
26 fines and penalties, subject to the approval of the Auditor
27 General and to the right of any party aggrieved to file a
28 petition for resettlement or for review and appeal.
29 § 514. Records and report of department.
30 The commissioner shall preserve, in a permanent form, a full
19850H1962B2642 - 58 -
1 record of his proceedings and a concise statement of the
2 condition of each entity, society or agency examined. He shall
3 make an annual report, to be submitted to the General Assembly,
4 showing the receipts and expenses of his department, the
5 condition of the entities or societies doing business in this
6 Commonwealth, and such other information as will inform the
7 public of the affairs or activities of the department.
8 CHAPTER 7
9 RESERVE LIABILITY
10 Subchapter
11 A. Life Insurance and Annuities
12 B. Insurance Other than Life Insurance
13 C. Workmen's Compensation and Liability Insurance
14 D. Casualty Insurance
15 E. Title Insurance
16 SUBCHAPTER A
17 LIFE INSURANCE AND ANNUITIES
18 Sec.
19 701. Valuation by commissioner.
20 702. Computation of reserves on prior policies.
21 703. Computation of reserves on recent policies.
22 704. Reserve fund.
23 705. Alternative reserve determination.
24 706. Computation of reserves for health and accident insurance.
25 707. Minimum reserve requirements of certain companies.
26 708. Valuations by other states.
27 709. Valuation of securities.
28 § 701. Valuation by commissioner.
29 The commissioner shall each year value, or cause to be
30 valued, the reserve liabilities referred to in this section as
19850H1962B2642 - 59 -
1 reserves or net value, as of December 31 of the preceding year,
2 for all outstanding life insurance policies and annuity and pure
3 endowment contracts of every life insurance company doing
4 business in this Commonwealth, except that, in the case of any
5 alien company, the valuation shall be limited to its United
6 States business in accordance with the terms of the policy or
7 contract and with this chapter, and may certify the amount of
8 these reserves, specifying the mortality tables, rates of
9 interest and methods used in the calculation of the reserves. In
10 calculating these reserve liabilities, he may use group methods
11 and approximate averages for fractions of a year or otherwise.
12 The provisions of this section and sections 702 (relating to
13 computation of reserves on prior policies) through 705 (relating
14 to alternative reserve determination) for the valuation of
15 policies and for premium rates do not apply to companies or
16 associations transacting business on the mutual assessment plan.
17 § 702. Computation of reserves on prior policies.
18 In the case of policies issued prior to the operative date of
19 the former section 410A (relating to standard nonforfeiture law
20 for life insurance) of the act of May 17, 1921 (P.L.682,
21 No.284), known as The Insurance Company Law of 1921:
22 (1) The net value of all outstanding policies of life
23 insurance issued by the company prior to January 1, 1890,
24 shall be computed on the basis of the American experience
25 table of mortality, with interest at not less than 4.5% and
26 not more than 6% a year.
27 (2) The net value of all outstanding policies of life
28 insurance issued between January 1, 1890, and December 31,
29 1903, shall be computed on the basis of the combined
30 experience or actuaries' table of mortality, with interest at
19850H1962B2642 - 60 -
1 4% a year.
2 (3) The net value of all outstanding policies of life
3 insurance issued on and after January 1, 1903, shall be
4 computed on the basis of the American experience table of
5 mortality, with interest at 3.5% a year, except that any
6 company may value its group term insurance policies under
7 which premium rates are not guaranteed for a period in excess
8 of five years on the basis of the American men ultimate table
9 of mortality, with interest at 3.5% a year.
10 (4) The net value of all policies of life insurance
11 issued on and after January 1, 1921, where the premiums are
12 payable monthly or more often, shall be computed on the basis
13 of the American experience table of mortality, with interest
14 at 3.5% a year, except that any company may value its
15 industrial policies on the basis of the standard industrial
16 mortality table, with interest at 3.5% a year.
17 (5) The net value of a policy at any time shall be taken
18 to be the single net premium which will at that time effect
19 the insurance, less the value at that time of the future net
20 premiums called for by the table of mortality and rate of
21 interest designated.
22 (6) Except as otherwise provided in section 703(1)(ii)
23 and (2) (relating to computation of reserves on recent
24 policies) for group annuity and pure endowment contracts, the
25 legal minimum standard for valuation of annuities issued
26 after January 1, 1912, shall be McClintock's table of
27 mortality among annuitants, with interest at 3.5% a year. For
28 annuities and pure endowments purchased under group annuity
29 and pure endowment contracts, the legal minimum standard may,
30 at the option of the company, be the 1971 Group Annuity
19850H1962B2642 - 61 -
1 Mortality Table or any modification of this table approved by
2 the commissioner, with interest at 5% a year. Annuities
3 deferred ten or more years and written in connection with
4 life or term insurance shall be valued upon the same
5 mortality table from which the consideration or premiums were
6 computed, with interest not higher than 3.5% a year.
7 (7) A company may at any time elect under any of its
8 policies of life insurance to reserve on the American
9 experience table of mortality, with a lower rate of interest
10 but at a rate not less than 2%, or on the American men
11 ultimate table of mortality with such modification and
12 extension below age 20 as may be approved by the
13 commissioner, with interest at a rate not more than 3.5% and
14 not less than 2%, and its obligations under such policies
15 shall be valued accordingly.
16 (8) On or after the operative date of the former section
17 410A of The Insurance Company Law of 1921, reserves for any
18 policies or contracts may be calculated, at the option of the
19 company, according to any standard which produces greater
20 aggregate reserves for all such policies or contracts than
21 the standard in use by such company immediately prior to the
22 exercise of the option referred to in this paragraph as "the
23 prior standard." With the approval of the commissioner, any
24 company which has adopted any standard of valuation producing
25 greater aggregate reserves than the minimum reserves under
26 the prior standard may adopt any lower standard of valuation
27 for any policies or contracts but not lower than the minimum
28 reserves under the prior standard nor lower than the standard
29 specified in such policies or contracts or the standard used
30 by such company for the determination of the nonforfeiture
19850H1962B2642 - 62 -
1 values thereof.
2 § 703. Computation of reserves on recent policies.
3 This section applies only to policies and contracts issued on
4 or after the operative date of the former section 410A (relating
5 to standard nonforfeiture law for life insurance) of the act of
6 May 17, 1921 (P.L.682, No.284), known as The Insurance Company
7 Law of 1921, except as otherwise provided in paragraphs (1)(ii)
8 and (2) for group annuity and pure endowment contracts issued
9 prior thereto.
10 (1) (i) Except as otherwise provided in subparagraph
11 (ii) and in paragraph (2), the minimum standard for the
12 valuation of all such policies and contracts shall be the
13 commissioner's reserve valuation methods defined in
14 paragraphs (3) and (4), and in section 707 (relating to
15 minimum reserve requirements of certain companies) 3.5%
16 interest for policies and contracts other than group
17 annuity and pure endowment contracts and as provided in
18 subparagraph (i)(C) for group annuity and pure endowment
19 contracts, or in the case of policies and contracts,
20 other than annuity and pure endowment contracts, issued
21 on or after June 23, 1976, 4% interest for such policies
22 issued prior to January 1, 1979, and 4.5% interest or
23 such higher rate of interest as may be approved from time
24 to time by the commissioner for such policies issued on
25 or after January 1, 1979, and the following tables:
26 (A) For all ordinary policies of life insurance
27 issued on the standard basis, excluding any
28 disability and accidental death benefits in such
29 policies, the Commissioners 1941 Standard Ordinary
30 Mortality Table for such policies issued prior to the
19850H1962B2642 - 63 -
1 operative date of the former section 410A(d)(2) of
2 The Insurance Company Law of 1921 and the
3 Commissioners 1958 Standard Ordinary Mortality Table
4 for such policies issued on that operative date.
5 However, for any category of such policies issued on
6 female risks, all modified net premiums and present
7 values referred to in this section may be calculated
8 according to any age not more than six years younger
9 than the actual age of the insured; and for such
10 policies issued on or after the operative date of the
11 former section 410A(e) of The Insurance Company Law
12 of 1921, the modified net premiums and present values
13 may be calculated on the basis of the Commissioners
14 1980 Standard Ordinary Mortality Table or, at the
15 election of the company for any one or more specified
16 plans of life insurance, the Commissioners 1980
17 Standard Ordinary Mortality Table with Ten-Year
18 Select Mortality Factors or any ordinary mortality
19 table adopted after 1980 by the National Association
20 of Insurance Commissioners and approved by regulation
21 of the commissioner for use in determining the
22 minimum standard of valuation for such policies.
23 (B) For all industrial life insurance policies
24 issued on the standard basis, excluding any
25 disability and accidental death benefits in those
26 policies, the 1941 Standard Industrial Mortality
27 Table for those policies issued prior to the
28 operative date of the former section 410A(d)(3) of
29 The Insurance Company Law of 1921, and, for those
30 policies issued on or after January 25, 1966, the
19850H1962B2642 - 64 -
1 Commissioners 1961 Standard Industrial Mortality
2 Table or any industrial mortality table adopted after
3 1980 by the National Association of Insurance
4 Commissioners and approved by regulation of the
5 commissioner for use in determining the minimum
6 standard of valuation for such policies.
7 (C) For individual annuity and pure endowment
8 contracts, excluding any disability and accidental
9 death benefits in such contracts, the 1937 Standard
10 Annuity Mortality Table, or, at the option of the
11 company, the Annuity Mortality Table for 1949
12 Ultimate or any modification of either of these
13 tables approved by the commissioner.
14 (D) For all annuities and pure endowments
15 purchased under group annuity and pure endowment
16 contracts, excluding any disability and accidental
17 death benefits in such contracts, either the Group
18 Annuity Mortality Table for 1951 or any modification
19 of such table approved by the commissioner, with
20 interest at 3.5% or, at the option of the company,
21 the 1971 Group Annuity Mortality Table or any
22 modification of this table approved by the
23 commissioner, with interest at 5%; or, at the option
24 of the company, any of the tables or modifications of
25 tables specified for individual annuity and pure
26 endowment contracts.
27 (E) For total and permanent disability benefits
28 in or supplementary to ordinary policies or
29 contracts, for policies or contracts issued on or
30 after January 1, 1966, the tables of Period 2
19850H1962B2642 - 65 -
1 disablement rates and the 1930 to 1950 termination
2 rates of the 1952 Disability Study of the Society of
3 Actuaries, with due regard to the type of benefit, or
4 any tables of disablement rates and termination rates
5 adopted after 1980 by the National Association of
6 Insurance Commissioners approved by regulation of the
7 commissioner for use in determining the minimum
8 standard of valuation for such policies; for policies
9 or contracts issued on or after January 1, 1961, and
10 prior to January 1, 1966, either such tables or, at
11 the option of the company, the Class (3) Disability
12 Table (1926); and for policies issued prior to
13 January 1, 1961, the Class (3) Disability Table
14 (1926). Any such table shall, for active lives, be
15 combined with a mortality table permitted for
16 calculating the reserves for life insurance policies.
17 (F) For accidental death benefits in or
18 supplementary to policies, for policies issued on or
19 after January 1, 1966, the 1959 Accidental Death
20 Benefits Table or any accidental death benefits table
21 adopted after 1980 by the National Association of
22 Insurance Commissioners approved by regulation of the
23 commissioner for use in determining the minimum
24 standard of valuation for such policies; for policies
25 issued on or after January 1, 1961, and prior to
26 January 1, 1966, either such table or, at the option
27 of the company, the Inter-Company Double Indemnity
28 Mortality Table; and for policies issued prior to
29 January 1, 1961, the Inter-Company Double Indemnity
30 Mortality Table. Either table shall be combined with
19850H1962B2642 - 66 -
1 a mortality table permitted for calculating the
2 reserves for life insurance policies.
3 (G) For group life insurance, life insurance
4 issued on the substandard basis and other special
5 benefits, such tables as may be approved by the
6 commissioner.
7 (ii) Except as provided in paragraph (2) the minimum
8 standard for valuation of all individual annuity and pure
9 endowment contracts issued on or after the operative date
10 of this subparagraph, as defined in clause (F), and for
11 all annuities and pure endowments purchased on or after
12 the operative date under group annuity and pure endowment
13 contracts, shall be the commissioner's reserve valuation
14 methods defined in paragraphs (3) and (4) and the
15 following tables and interest rates:
16 (A) For individual annuity and pure endowment
17 contracts issued prior to January 1, 1979, excluding
18 any disability and accidental death benefits in such
19 contracts, the 1971 Individual Annuity Mortality
20 Table or any modification of this table approved by
21 the commissioner; and 6% interest for single premium
22 immediate annuity contracts, and 4% interest for all
23 other individual annuity and pure endowment
24 contracts.
25 (B) For individual single premium immediate
26 annuity contracts issued on or after January 1, 1979,
27 excluding any disability and accidental death
28 benefits in such contracts, the 1971 Individual
29 Annuity Mortality Table or any individual annuity
30 mortality table, adopted after 1980 by the National
19850H1962B2642 - 67 -
1 Association of Insurance Commissioners and approved
2 by regulation of the commissioner for use in
3 determining the minimum standard of valuation for
4 such contracts, or any modification of these tables
5 approved by the commissioner, and 7.5% interest or
6 such higher rate of interest as may be approved from
7 time to time by the commissioner.
8 (C) For individual annuity and pure endowment
9 contracts issued on or after January 1, 1979, other
10 than single premium immediate annuity contracts,
11 excluding any disability and accidental death
12 benefits in such contracts, the 1971 Individual
13 Annuity Mortality Table or any individual annuity
14 mortality table adopted after 1980 by the National
15 Association of Insurance Commissioners approved by
16 regulation of the commissioner for use in determining
17 the minimum standard of valuation for such contracts,
18 or any modification of these tables approved by the
19 commissioner, and 5.5% interest for single premium
20 deferred annuity and pure endowment contracts and
21 4.5% interest for all other such individual annuity
22 and pure endowment contracts or such higher rate
23 interest as may be approved from time to time by the
24 commissioner.
25 (D) For all annuities and pure endowment
26 contracts purchased prior to January 1, 1979 under
27 group annuity and pure endowment contracts, excluding
28 any disability and accidental death benefits
29 purchased under such contracts, the 1971 Group
30 Annuity Mortality Table or any modification of this
19850H1962B2642 - 68 -
1 table approved by the commissioner, and 6% interest.
2 (E) For all annuities and pure endowment
3 contracts purchased on or after January 1, 1979,
4 under group annuity and pure endowment contracts,
5 excluding any disability and accidental death
6 benefits purchased under such contracts, the 1971
7 Group Annuity Mortality Table or any group annuity
8 mortality table adopted after 1980 by the National
9 Association of Insurance Commissioners approved by
10 regulation of the commissioner for use in determining
11 the minimum standard of valuation for such annuities
12 and pure endowments or any modification of these
13 tables approved by the commissioner, and 7.5%
14 interest or such higher rate of interest as may be
15 approved, from time to time, by the commissioner.
16 (F) After June 23, 1976, a company may file with
17 the commissioner a written notice of its election to
18 comply with the provisions of this subparagraph (ii)
19 after a specified date before January 1, 1979, which
20 shall be the operative date of this subparagraph for
21 the company. However, a company may elect a different
22 operative date for individual annuity and pure
23 endowment contracts from that elected for group
24 annuity and pure endowment contracts. Whenever a
25 company makes no such election, the operative date of
26 this subparagraph for the company shall be January 1,
27 1979.
28 (2) (i) The interest rates used in determining the
29 minimum standard for the valuation of any of the
30 following shall be the calendar year statutory valuation
19850H1962B2642 - 69 -
1 interest rates as defined in this paragraph:
2 (A) All life insurance policies issued in a
3 particular calendar year, on or after the operative
4 date of the former section 410A(e) of The Insurance
5 Company Law of 1921.
6 (B) All individual annuity and pure endowment
7 contracts issued in a particular calendar year on or
8 after January 1, 1981.
9 (C) All annuities and pure endowment contracts
10 purchased in a particular calendar year on or after
11 January 1, 1981, under group annuity and pure
12 endowment contracts.
13 (D) The net increase, if any, in a particular
14 calendar year after January 1, 1981, in amounts held
15 under guaranteed interest contracts.
16 (ii) The calendar year statutory valuation interest
17 rates, referred to in this subparagraph as I, shall be
18 determined as follows and the results rounded to the
19 nearer 0.25%:
20 (A) For life insurance: I = .03 + W(R1 - .03) +
21 W/2(R2 - .09).
22 (B) For single premium immediate annuities and
23 for annuity benefits involving life contingencies
24 arising from other annuities with cash settlement
25 options and from guaranteed interest contracts with
26 cash settlement options: I = .03 + W(R - .03). For
27 purposes of this paragraph, R1 is the lesser of R and
28 .09, R2 is the greater of R and .09, R is the
29 reference interest rate defined in subparagraph (iv)
30 and W is the weighting factor defined in subparagraph
19850H1962B2642 - 70 -
1 (iii).
2 (C) For other annuities with cash settlement
3 options and guaranteed interest contracts with cash
4 settlement options, valued on an issue year basis,
5 except as stated in clause (B), the formula for life
6 insurance stated in clause (A) shall apply to
7 annuities and guaranteed interest contracts with
8 guarantee durations in excess of ten years, and the
9 formula for single premium immediate annuities stated
10 in clause (B) shall apply to annuities and guaranteed
11 interest contracts with guarantee duration of ten
12 years or less.
13 (D) For other annuities with no cash settlement
14 options and for guaranteed interest contracts with no
15 cash settlement options, the formula for single
16 premium immediate annuities stated in clause (B)
17 shall apply.
18 (E) For other annuities with cash settlement
19 options and guaranteed interest contracts with cash
20 settlement options, valued on a change in fund basis,
21 the formula for single premium immediate annuities
22 stated in clause (B) shall apply.
23 (F) However, if the calendar year statutory
24 valuation interest rate for any life insurance
25 policies issued in any calendar year determined
26 without reference to this sentence differs from the
27 corresponding actual rate for similar policies issued
28 in the immediately preceding calendar year by less
29 than 1/2%, the calendar year statutory valuation
30 interest rate for the life insurance policies shall
19850H1962B2642 - 71 -
1 be equal to the corresponding actual rate for the
2 immediately preceding calendar year. For the purpose
3 of applying the immediately preceding sentence, the
4 calendar year statutory valuation interest rate for
5 life insurance policies issued in a calendar year
6 shall be determined for 1980 (using the reference
7 interest rate defined for 1979) and shall be
8 determined for each subsequent calendar year.
9 (iii) The weighting factors referred to in the
10 formulas stated above are given in the following tables:
11 (A) Weighting factors for life insurance:
12 Guarantee Weighting
13 Duration Factors
14 (Years)
15 10 or less .50
16 More than 10, but not more than 20 .45
17 More than 20 .35
18 For life insurance, the guarantee duration is the
19 maximum number of years the life insurance can remain
20 in force on a basis guaranteed in the policy or under
21 options to convert to plans of life insurance with
22 premium rates or nonforfeiture values or both which
23 are guaranteed in the original policy.
24 (B) The weighting factor for single premium
25 immediate annuities and for annuity benefits
26 involving life contingencies arising from other
27 annuities with cash settlement options and guaranteed
28 interest contracts with cash settlement options shall
29 be .80.
30 (C) Weighting factors for other annuities and
19850H1962B2642 - 72 -
1 for guaranteed interest contracts, except as stated
2 in clause (B), shall be as specified in subclauses
3 (I), (II) and (III), subject to the rules and
4 definitions in subclauses (IV), (V) and (VI):
5 (I) For annuities and guaranteed interest
6 contracts valued on an issue year basis:
7 Guarantee Weighting Factor
8 Duration for Plan Type
9 (Years) A B C
10 5 or less .80 .60 .50
11 More than 5, but not
12 more than 10: .75 .60 .50
13 More than 10, but not
14 more than 20: .65 .50 .45
15 More than 20: .45 .35 .35
16 (II) For annuities and guaranteed interest
17 contracts valued on a change in fund basis, the
18 factors stated in subclause (I) shall be
19 increased by:
20 Plan Type
21 A B C
22 .15 .25 .05
23 (III) For annuities and guaranteed interest
24 contracts valued on an issue year basis (other
25 than those with no cash settlement options) which
26 do not guarantee interest on considerations
27 received more than one year after issue or
28 purchase and for annuities and guaranteed
29 interest contracts valued on a change in fund
30 basis which do not guarantee interest rates on
19850H1962B2642 - 73 -
1 considerations received more than twelve months
2 beyond the valuation date, the factors as
3 determined under subclauses (I) and (II) shall be
4 increased by:
5 Plan Type
6 A B C
7 .05 .05 .05
8 (IV) For other annuities with cash
9 settlement options and guaranteed interest
10 contracts with cash settlement options, the
11 guarantee duration is the number of years for
12 which the contract guarantees interest rates in
13 excess of the calendar year statutory valuation
14 interest rate for life insurance policies with
15 guarantee duration in excess of twenty years. For
16 other annuities with no cash settlement options
17 and for guaranteed interest contracts with no
18 cash settlement options, the guarantee duration
19 is the number of years from the date of issue or
20 date of purchase to the date annuity benefits are
21 scheduled to commence.
22 (V) The plan types as used in subclauses
23 (I), (II) and (III) are defined as follows:
24 Plan Type A: At any time the policyholder
25 may not withdraw funds or may withdraw funds
26 only on the following conditions: (1) with
27 an adjustment to reflect changes in interest
28 rates or asset values since receipt of the
29 funds by the insurance company; (2) without
30 such adjustment but in installments over five
19850H1962B2642 - 74 -
1 years or more; (3) as an immediate life
2 annuity.
3 Plan Type B: Before expiration of the
4 interest rate guarantee, the policyholder may
5 not withdraw funds or may withdraw funds only
6 on the following conditions: (1) with an
7 adjustment to reflect changes in interest
8 rates or asset values since receipt of the
9 funds by the insurance company; or (2)
10 without such adjustment but in installments
11 over five years or more. At the end of the
12 interest rate guarantee, funds may be
13 withdrawn without such adjustment in a single
14 sum or installments over less than five
15 years.
16 Plan Type C: The policyholder may
17 withdraw funds before expiration of the
18 interest rate guarantee in a single sum or
19 installments over less than five years
20 either: (1) without adjustment to reflect
21 changes in interest rates or asset values
22 since receipt of the funds by the insurance
23 company; or (2) subject only to a fixed
24 surrender charge stipulated in the contract
25 as a percentage of the fund.
26 (VI) A company may elect to value guaranteed
27 interest contracts with cash settlement options
28 and annuities with cash settlement options on
29 either an issue year basis or on a change in fund
30 basis. Guaranteed interest contracts with no cash
19850H1962B2642 - 75 -
1 settlement options and other annuities with no
2 cash settlement options shall be valued on an
3 issue year basis. As used in this paragraph an
4 "issue year basis of valuation" refers to a
5 valuation basis under which the interest rate
6 used to determine the minimum valuation standard
7 for the entire duration of the annuity or
8 guaranteed interest contract is the calendar year
9 valuation interest rate for the year of issue or
10 year of purchase of the annuity or guaranteed
11 interest contract, and the "change in fund basis
12 of valuation" refers to a valuation basis under
13 which the interest rate used to determine the
14 minimum valuation standard applicable to each
15 change in the fund held under the annuity or
16 guaranteed interest contract is the calendar year
17 valuation interest rate for the year of the
18 change in the fund.
19 (iv) The reference interest rate referred to in
20 subparagraph (ii)(B) shall be as follows:
21 (A) For all life insurance, the lesser of the
22 average over a period of 36 months and the average
23 over a period of 12 months, ending on June 30 of the
24 calendar year next preceding the year of issue, of
25 Moody's Corporate Bond Yield Average--Monthly Average
26 Corporates as published by Moody's Investors Service,
27 Inc.
28 (B) For single premium immediate annuities and
29 for annuity benefits involving life contingencies
30 arising from other annuities with cash settlement
19850H1962B2642 - 76 -
1 options and guaranteed interest contracts with cash
2 settlement options, the average over a period of 12
3 months, ending on June 30 of the calendar year of
4 issue or year of purchase, of Moody's Corporate Bond
5 Yield Average--Monthly Average Corporates as
6 published by Moody's Investors Service, Inc.
7 (C) For other annuities with cash settlement
8 options and guaranteed interest contracts with cash
9 settlement options, valued on a year of issue basis,
10 except as stated in clause (B) with guarantee
11 duration in excess of ten years, the lesser of the
12 average over a period of 36 months and the average
13 over a period of 12 months, ending on June 30 of the
14 calendar year of issue or purchase, of Moody's
15 Corporate Bond Yield Average--Monthly Average
16 Corporates as published by Moody's Investors Service,
17 Inc.
18 (D) For other annuities with cash settlement
19 options and guaranteed interest contracts with cash
20 settlement options, valued on a year of issue basis,
21 except as stated in clause (B), with guarantee
22 duration of ten years or less, the average over a
23 period of 12 months, ending on June 30 of the
24 calendar year of issue or purchase, of Moody's
25 Corporate Bond Yield Average--Monthly Average
26 Corporates as published by Moody's Investors Service,
27 Inc.
28 (E) For other annuities with no cash settlement
29 options and for guaranteed interest contracts with no
30 cash settlement options, the average over a period of
19850H1962B2642 - 77 -
1 12 months, ending on June 30 of the calendar year of
2 issue or purchase, of Moody's Corporate Bond Yield
3 Average--Monthly Average Corporates as published by
4 Moody's Investors Service, Inc.
5 (F) For other annuities with cash settlement
6 options and guaranteed interest contracts with cash
7 settlement options, valued on a change in fund basis,
8 except as stated in clause (B), the average over a
9 period of 12 months, ending on June 30 of the
10 calendar year of the change in the fund, of Moody's
11 Corporate Bond Yield Average--Monthly Average
12 Corporates as published by Moody's Investors Service,
13 Inc.
14 (v) If Moody's Corporate Bond Yield Average--Monthly
15 Average Corporates is no longer published by Moody's
16 Investors Service, Inc., or if the National Association
17 of Insurance Commissioners determines that Moody's
18 Corporate Bond Yield Average--Monthly Average Corporates
19 is no longer appropriate for the determination of the
20 reference interest rate, then an alternative method for
21 determination of the reference interest rate adopted by
22 the National Association of Insurance Commissioners and
23 approved by regulation of the commissioner may be
24 substituted.
25 (3) (i) Except as otherwise provided in subparagraph
26 (ii), in paragraph (4) and in section 707 (relating to
27 minimum reserve requirements of certain companies),
28 reserves according to the commissioner's reserve
29 valuation method for the life insurance and endowment
30 benefits of policies providing for a uniform amount of
19850H1962B2642 - 78 -
1 insurance and requiring the payment of uniform premiums
2 shall be the excess, if any, of the present value at the
3 date of valuation of such future guaranteed benefits
4 provided for by those policies, over the then present
5 value of any future modified net premiums therefor. The
6 modified net premiums for any such policy shall be such
7 uniform percentage of the respective contract premiums
8 for such benefits that the present value, at the date of
9 issue of the policy, of all such modified net premiums
10 shall be equal to the sum of the then present value of
11 such benefits provided for by the policy and the excess
12 of (A) over (B), as follows:
13 (A) A net level annual premium equal to the
14 present value at the date of issue of such benefits
15 provided for after the first policy year, divided by
16 the present value at the date of issue of an annuity
17 of one per annum payable on the first and each
18 subsequent anniversary of such policy on which a
19 premium falls due. However, such net level annual
20 premium shall not exceed the net level annual premium
21 on the 19 year premium whole life plan for insurance
22 of the same amount at an age one year higher than the
23 age at issue of such policy.
24 (B) A net one year term premium for such
25 benefits provided for in the first policy year.
26 (ii) For any life insurance policy issued on or
27 after January 1, 1985, for which the gross premium in the
28 first policy year exceeds that of the second year and for
29 which no comparable additional benefit is provided in the
30 first year for such excess and which provides an
19850H1962B2642 - 79 -
1 endowment benefit or a cash surrender value or a
2 combination thereof in an amount greater than such excess
3 premium, the reserve according to the commissioner's
4 reserve valuation method as of any policy anniversary
5 occurring on or before the assumed ending date shall,
6 except as otherwise provided in section 707, be the
7 greater of the reserve as of such policy anniversary
8 calculated as described in subparagraph (i) and the
9 reserve as of such policy anniversary calculated as
10 described in this paragraph, but subject to the
11 following:
12 (A) the value defined in subparagraph (i) shall
13 be reduced by 15% of the amount of such excess first
14 year premium;
15 (B) all present values of benefits and premiums
16 shall be determined without reference to premiums or
17 benefits provided for by the policy after the assumed
18 ending date;
19 (C) the policy shall be assumed to mature on the
20 assumed ending date as an endowment; and
21 (D) the cash surrender value provided on the
22 assumed ending date shall be considered as an
23 endowment benefit.
24 In making this comparison the mortality and interest
25 bases stated in paragraphs (1)(i) and (2) shall be used.
26 As used in this subparagraph the term "assumed ending
27 date" means the first policy anniversary on which the sum
28 of any endowment benefit and any cash surrender value
29 then available is greater than the excess premium.
30 (iii) Reserves according to the commissioner's
19850H1962B2642 - 80 -
1 reserve valuation method for:
2 (A) life insurance policies providing for a
3 varying amount of insurance or requiring the payment
4 of varying premiums;
5 (B) group annuity and pure endowment contracts
6 purchased under a retirement plan or plan of deferred
7 compensation, established or maintained by an
8 employer, including a partnership or sole
9 proprietorship, or by an employee organization, or by
10 both, other than a plan providing individual
11 retirement accounts or individual retirement
12 annuities under section 408 of the Internal Revenue
13 Code (68A Stat. 3, 26 U.S.C. § 408);
14 (C) disability and accidental death benefits in
15 all policies and contracts; and
16 (D) all other benefits, except life insurance
17 and endowment benefits in life insurance policies and
18 benefits provided by all other annuity and pure
19 endowment contracts;
20 shall be calculated by a method consistent with the
21 principles of this paragraph except that any extra
22 premiums charged because of impairments or special
23 hazards shall be disregarded in the determination of
24 modified net premiums.
25 (4) This paragraph applies to all annuity and pure
26 endowment contracts other than group annuity and pure
27 endowment contracts purchased under a retirement plan or plan
28 of deferred compensation established or maintained by an
29 employer, including a partnership or sole proprietorship, or
30 by an employee organization, or by both, other than a plan
19850H1962B2642 - 81 -
1 providing individual retirement accounts or individual
2 retirement annuities under section 408 of the Internal
3 Revenue Code. Reserves according to the commissioner's
4 annuity reserve method for benefits under annuity or pure
5 endowment contracts, excluding any disability and accidental
6 death benefits in such contracts, shall be the greatest of
7 the respective excesses of the present values at the date of
8 valuation of the future guaranteed benefits, including
9 guaranteed nonforfeiture benefits, provided for by such
10 contracts at the end of each respective contract year, over
11 the present value, at the date of valuation, of any future
12 valuation considerations derived from future gross
13 considerations required by the terms of such contract, that
14 become payable prior to the end of such respective contract
15 year. The future guaranteed benefits shall be determined by
16 using the mortality table, if any, and the interest rate
17 specified in such contracts for determining guaranteed
18 benefits. The valuation considerations are the portions of
19 the respective gross considerations applied under the terms
20 of such contracts to determine nonforfeiture values.
21 (5) A company's aggregate reserves for all life
22 insurance policies, excluding disability and accidental death
23 benefits, shall not be less than the aggregate reserves
24 calculated in accordance with the methods set forth in
25 paragraphs (3) and (4) and in section 707, and the mortality
26 table or tables and rate or rates of interest used in
27 calculating nonforfeiture benefits for such policies.
28 (6) Reserves for any category of policies, contracts or
29 benefits as established by the commissioner may be
30 calculated, at the option of the company, according to any
19850H1962B2642 - 82 -
1 standards which produce greater aggregate reserves for such
2 category than those calculated according to the minimum
3 standard provided under this section, but the rate of
4 interest used for policies and contracts other than annuity
5 and pure endowment contracts shall not be higher than the
6 corresponding rate of interest used in calculating any
7 nonforfeiture benefits provided for therein.
8 (7) Any life insurance company which adopts any standard
9 of valuation producing greater aggregate reserves than those
10 calculated according to the minimum standard provided under
11 this section may, with the approval of the commissioner,
12 adopt any lower standard of valuation, but not lower than the
13 minimum provided under this section.
14 § 704. Reserve fund.
15 The aggregate reserves or net value so ascertained of the
16 policies and contracts of any life insurance company shall be
17 deemed its reserve liability. It shall hold funds in secure
18 investments of an amount equal to the net value above all its
19 other liabilities. The commissioner shall, after having
20 determined the net value of all the policies and contracts in
21 force, confirm compliance with this section. Whenever any life
22 insurance company doing business in this Commonwealth does not
23 have on hand the net value of all policies in force, after all
24 other debts and claims against it, including 50% of capital,
25 have been provided for, the commissioner shall notify the
26 company and its agents to issue no new policies until its funds
27 become equal to its liabilities.
28 § 705. Alternative reserve determination.
29 In the case of any plan of life insurance which provides for
30 future premium determination, the amounts of which are to be
19850H1962B2642 - 83 -
1 determined by the insurance company based on then estimates of
2 future experience or, in the case of any plan of life insurance
3 or annuity which is of such a nature that the minimum reserves
4 cannot be determined by the methods described in sections 703(3)
5 and (4) (relating to computation of reserves on recent policies)
6 and 707 (relating to minimum reserve requirements of certain
7 companies), the reserves which are held under the plan shall:
8 (1) be appropriate in relation to the benefits and the
9 pattern of premiums for that plan; and
10 (2) be computed by a method which is consistent with the
11 principles of this section and section 707, as determined by
12 regulations of the commissioner.
13 § 706. Computation of reserves for health and accident
14 insurance.
15 (a) General rule.--The commissioner shall annually value, or
16 shall annually require the insurer to value, the reserve
17 liabilities, as of December 31 of the preceding year, of every
18 life insurance company doing business in this Commonwealth, with
19 respect to its health and accident insurance policies. For all
20 such policies, the company shall maintain an active life reserve
21 which shall place a sound value on its liabilities under such
22 policies and shall be not less than the reserve according to
23 appropriate standards set forth in the regulations of the
24 commissioner and not less in the aggregate than the pro rata
25 gross unearned premiums for the policies.
26 (b) Exception.--This section does not apply to total and
27 permanent disability benefits supplementary to life insurance or
28 annuity policies or contracts.
29 § 707. Minimum reserve requirements of certain companies.
30 (a) Reduced premiums.--If in any contract year the gross
19850H1962B2642 - 84 -
1 premium charged by any life insurance company on any policy or
2 contract is less than the valuation net premium for the policy
3 or contract calculated by the method used in calculating the
4 reserve thereon but using the minimum valuation standards of
5 mortality and rate of interest, the minimum reserve required for
6 the policy or contract shall be the greater of either the
7 reserve calculated according to the mortality table, rate of
8 interest and method actually used for the policy or contract, or
9 the reserve calculated by the method actually used for the
10 policy or contract but using the minimum valuation standards of
11 mortality and rate of interest and replacing the valuation net
12 premium by the actual gross premium in each contract year for
13 which the valuation net premium exceeds the actual gross
14 premium. The minimum valuation standards of mortality and rate
15 of interest referred to in this section are those standards
16 stated in sections 702 (relating to computation of reserves on
17 prior policies) and 703(1)(i) and (2) (relating to computation
18 of reserves on recent policies).
19 (b) Exception.--For any life insurance policy issued on or
20 after January 1, 1985, for which the gross premium in the first
21 policy year exceeds that of the second year and for which no
22 comparable additional benefit is provided in the first year for
23 the excess and which provides an endowment benefit or a cash
24 surrender value or a combination thereof in an amount greater
25 than the excess premium, the provisions of subsection (a) shall
26 be applied as if the method actually used in calculating the
27 reserve for the policy were the method described in section
28 703(3), ignoring section 703(3)(ii). The minimum reserve at each
29 policy anniversary of such a policy shall be the greater of the
30 minimum reserve calculated in accordance with section 703(3),
19850H1962B2642 - 85 -
1 including section 703(3)(ii), and the minimum reserve calculated
2 in accordance with this section.
3 § 708. Valuations by other states.
4 In lieu of the valuation of the reserves required in sections
5 701 (relating to valuation by commissioner) through 706
6 (relating to computation of reserves for health and accident
7 insurance) of any foreign or alien company, the commissioner may
8 accept any valuation made by the insurance supervisory official
9 of any state or other jurisdiction if this valuation complies
10 with the minimum standard provided in sections 701 through 706
11 and if the official of that state or jurisdiction accepts as
12 sufficient and valid for all legal purposes the certificate of
13 valuation of the commissioner when such certificate states the
14 valuation to have been made in a specified manner according to
15 which the aggregate reserves would be at least as large as if
16 they had been computed in the manner prescribed by the law of
17 that state or jurisdiction. Each company shall furnish to the
18 commissioner, on or before March 1 in each year, a certificate
19 from the proper officer of that state or jurisdiction, setting
20 forth the value of all the policies and contracts of the company
21 in force on the previous December 31. Any company failing to
22 furnish the certificate shall make a complete detailed list of
23 policies to the commissioner and shall be liable for all charges
24 and expenses resulting from the failure to furnish this
25 certificate.
26 § 709. Valuation of securities.
27 (a) General rule.--Bonds or other evidences of debt held by
28 life insurance companies or fraternal benefit societies
29 authorized to do business in this Commonwealth may, if amply
30 secured and if not in default as to principal or interest, be
19850H1962B2642 - 86 -
1 valued as follows:
2 (1) If purchased at par, at the par value.
3 (2) If purchased above or below par, on the basis of the
4 purchase price adjusted so as to bring the value at maturity
5 and so as to yield meantime the effective rate of interest at
6 which the purchase was made.
7 The purchase price shall not be taken at a higher figure than
8 the actual market value at the time of purchase. The
9 commissioner shall have full discretion in determining the
10 method of calculating values under this section, and the values
11 found by him in accordance with that method shall be final and
12 binding. Any company or society may return the bonds or other
13 evidences of debt at their market value or their book value, but
14 not at an aggregate value exceeding the aggregate of the values
15 calculated under this section.
16 (b) Election.--This section does not require any life
17 insurance company or fraternal benefit society authorized to do
18 business in this Commonwealth to value its bonds and other
19 evidences of debt by amortization as provided in this section,
20 but any company or society electing to adopt the amortized basis
21 shall have its bonds valued upon that basis.
22 SUBCHAPTER B
23 INSURANCE OTHER THAN LIFE INSURANCE
24 Sec.
25 721. Computation of unearned premium liability.
26 § 721. Computation of unearned premium liability.
27 (a) General rule.--In determining the liabilities upon its
28 contracts of insurance of any insurance company, other than a
29 life insurance company, and the amount the company should hold
30 as an unearned premium liability, the commissioner shall
19850H1962B2642 - 87 -
1 calculate amount on a monthly prorata basis or its equivalent on
2 the premiums in force at the end of any quarterly or annual
3 period, except in the case of noncancelable health and accident
4 insurance issued on and after January 1, 1950. The amount shall
5 be calculated according to the methods set out in subsection
6 (b). On perpetual insurance, the commissioner shall charge the
7 cash deposit received, less a surrender charge not exceeding 10%
8 thereof. For marine and inland insurance, he shall charge 50% of
9 the premium written in the policy upon risks covering more than
10 one passage not terminated, and the full amount of the premium
11 written in the policy upon all other marine and inland risks not
12 terminated; however, the commissioner may charge a premium
13 reserve equal to the unearned portions of the gross premiums
14 charged, computed on each respective risk from the date of the
15 issuance of the policy.
16 (b) Casualty insurance other than noncancelable health and
17 accident insurance.--The commissioner shall, in calculating the
18 reserve against unpaid losses of casualty insurance companies,
19 other than losses under noncancelable health and accident
20 insurance issued on and after January 1, 1950, liability and
21 workmen's compensation policies, set down by careful estimate in
22 each case the loss likely to be incurred against every claim
23 presented or that may be presented pursuant to notice from the
24 insured of the occurrence of an event that may result in a loss.
25 The sum of the items so estimated shall be the total amount of
26 the reserve, except that in credit insurance 50% of the premiums
27 on all credit policies expiring in the months of October,
28 November and December of the current year, less the amount of
29 losses paid on such policies, shall in addition thereto be
30 charged in the loss reserve.
19850H1962B2642 - 88 -
1 (c) Health and accident insurance.--The commissioner shall
2 annually value, or shall annually require the insurer to value,
3 the reserve liabilities, as of December 31 of the preceding
4 year, of every casualty insurance company doing business in this
5 Commonwealth, with respect to all of its health and accident
6 insurance policies. For all such policies the company shall
7 maintain an active life reserve which shall place a sound value
8 on its liabilities under the policies and be not less than the
9 reserve according to appropriate standards set forth in the
10 regulations of the commissioner and not less in the aggregate
11 than the prorata gross unearned premiums for such policies. With
12 respect to any foreign or alien insurer, the commissioner may
13 accept a like valuation of the insurance supervising official of
14 the state, province or foreign country in which the insurer is
15 domiciled if the valuation is made upon a basis and according to
16 standards producing an aggregate reserve not less than under
17 this section.
18 (d) Definition.--The term "noncancelable health and accident
19 insurance" means insurance against disability resulting from
20 sickness, ailment or bodily injury under a policy or contract
21 which the insurer does not have the option to cancel or
22 otherwise terminate the contract at or after the expiration of
23 one year from its effective date, excluding policies or
24 contracts insuring solely against accidental injury, or total
25 and permanent disability benefits, supplementary to life
26 insurance or annuity policies or contracts.
27 SUBCHAPTER C
28 WORKMEN'S COMPENSATION AND LIABILITY INSURANCE
29 Sec.
30 731. Definitions.
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1 732. Computation of reserves.
2 733. Distribution of unallocated loss expense payments.
3 734. Power of commissioner to determine reserves.
4 § 731. Definitions.
5 The following words and phrases when used in this subchapter
6 shall have the meanings given to them in this section unless the
7 context clearly indicates otherwise:
8 "Compensation." All insurance effected by virtue of statutes
9 providing compensation to employees for personal injuries
10 irrespective of fault of the employer.
11 "Earned premiums." Gross premiums charged on all policies
12 written, including all excess and additional premiums and
13 reinsurance premiums accepted, less return premiums other than
14 premiums returned to policyholders as dividends, and less all
15 reinsurance premiums ceded and premiums on policies canceled.
16 Earned premiums attributable to any specific period shall be
17 calculated by adding to the liability for unearned premiums at
18 the beginning of the period, the premiums written during the
19 period and subtracting the liability for unearned premiums at
20 the end of the period.
21 "Even monthly amount." The written premium divided by the
22 number of months for which the premium is written.
23 "Liability." All insurance except compensation insurance
24 against loss or damage from accident to or injuries suffered by
25 an employee or other person and for which the insured is liable.
26 "Loss payments" or "loss expense payments." All payments to
27 claimants, including payments for medical and surgical services,
28 legal expenses, salaries and expenses of investigators,
29 adjusters and field men, rents, salaries and expenses of office
30 employees, home office expenses and all other payments made on
19850H1962B2642 - 90 -
1 account of claims, whether the payments are allocated to
2 specific claims or unallocated.
3 "Monthly prorata basis." The calculation by which written
4 premium becomes earned in even monthly amounts for each entire
5 calendar month or part thereof during which a policy is in
6 force, except that for the calendar months in which a premium is
7 written or expires, one-half the even monthly amount is earned.
8 § 732. Computation of reserves.
9 The reserve required of stock and mutual insurance companies
10 and exchanges for outstanding losses under insurance against
11 loss or damage from accident to or injuries suffered by an
12 employee or other person, and for which the insured is liable,
13 shall be computed as follows:
14 (1) For all liability premiums earned during the three
15 years immediately preceding the date as of which the
16 statement is made, 60% of the earned liability premiums of
17 each of those three years, less all loss and loss expense
18 payments made under liability policies written in the
19 corresponding years.
20 (2) For all compensation claims under policies written
21 more than three years prior to the date as of which the
22 statement is made, the present value at 4% interest of the
23 determined and estimated future payments.
24 (3) For all compensation premiums earned in the three
25 years immediately preceding the date as of which the
26 statement is made, 65% of the earned compensation premiums of
27 each of those three years, less all loss and loss expense
28 payments made in connection with such claims under policies
29 written in the corresponding years, but not less than the
30 present value at 4% interest of the determined and the
19850H1962B2642 - 91 -
1 estimated unpaid compensation claims under policies written
2 during each of those years.
3 § 733. Distribution of unallocated loss expense payments.
4 All unallocated liability loss expense payments and all
5 unallocated compensation loss expense payments made in a given
6 calendar year in which an insurer has been issuing liability
7 policies shall be made in accordance with instructions set forth
8 in the notes pertaining to Schedule P, at page 35 of the Fire
9 and Casualty Companies (Association Edition) Annual Statement
10 Blank for the year ended December 31, 1974, as adopted for use
11 in this Commonwealth by the commissioner.
12 § 734. Power of commissioner to determine reserves.
13 Whenever the commissioner determines that the liability or
14 compensation loss reserves of any insurer calculated in
15 accordance with this subchapter are inadequate, he may require
16 the insurer to maintain additional reserves based upon estimated
17 individual claims or otherwise. Whenever a satisfactory
18 mathematical or actuarial table for valuing compensation loss
19 reserves is approved and promulgated by the commissioner, he may
20 require any insurer under his supervision to maintain upon this
21 tabular basis greater or lesser reserves than those provided
22 under section 732 (relating to computation of reserves).
23 SUBCHAPTER D
24 CASUALTY INSURANCE
25 Sec.
26 741. Right of action.
27 742. Notice of impairment of funds.
28 § 741. Right of action.
29 A policy of accident insurance against loss or damage
30 resulting from accident to or injury suffered by an employee or
19850H1962B2642 - 92 -
1 other person and for which the person insured is liable, or
2 against loss or damage to property caused by animals or by any
3 vehicle drawn, propelled or operated by any motive power and for
4 which loss or damage the person is liable, shall not be issued
5 or delivered in this Commonwealth by any corporation or other
6 insurer authorized to do business in this Commonwealth unless
7 the policy contains a provision that the insolvency or
8 bankruptcy of the person insured shall not release the insurance
9 carrier from the payment of damages for injury sustained or loss
10 occasioned during the life of the policy. The provision shall
11 also state that in case execution against the insured is
12 returned unsatisfied because of bankruptcy or insolvency in an
13 action brought by the injured person, or his personal
14 representative in case death results from the accident, then an
15 action may be maintained by the injured person or his personal
16 representative against the corporation under the terms of the
17 policy, for the amount of judgment in the action, not exceeding
18 the amount of the policy.
19 § 742. Notice of impairment of funds.
20 Having charged as a liability the reinsurance and loss
21 reserves for insurance companies and exchanges of this
22 Commonwealth other than life insurance companies and adding
23 thereto all other debts and claims against the company or
24 exchange, the commissioner shall, in case he finds the capital
25 or reserve of the company or exchange impaired to any degree,
26 give notice to the company or exchange to make good the capital
27 or reserve within 30 days.
28 SUBCHAPTER E
29 TITLE INSURANCE
30 Sec.
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1 751. Title insurance reserve.
2 752. Reinsurance on liquidation of company.
3 753. Recovery by policyholders.
4 § 751. Title insurance reserve.
5 (a) Reserve fund requirement.--All companies incorporated
6 for the insurance of owners of real estate, mortgages and others
7 interested in real estate, from loss by reason of defective
8 titles, liens and encumbrances, as well as all title insurance
9 and trust companies receiving deposits, heretofore incorporated
10 and authorized by charter or by law to carry on such business,
11 shall establish and maintain a reserve fund for the protection
12 of policyholders.
13 (b) Establishment and maintenance of fund.--The reserve fund
14 shall be established by setting aside a sum equal to 10% of the
15 premium paid on each policy of insurance which the company may
16 issue until the total amount set aside equals $250,000. The
17 total reserve fund may, with the consent of the commissioner, be
18 set aside at any one time or from time to time out of surplus
19 and undivided profits. The reserve fund shall be maintained as
20 long as liability on any policies is outstanding.
21 (c) Supervision by commissioner.--The custody of the reserve
22 fund shall be retained by the company, and the fund shall be
23 kept separate from other assets of the company. The commissioner
24 shall ascertain that a reserve fund equal to the amount required
25 by subsection (b) is maintained. If any company neglects or
26 refuses to establish or maintain the reserve fund, the
27 commissioner shall direct the company either to comply with the
28 provisions of this section or to discontinue doing title
29 insurance business.
30 (d) Investment of reserve fund.--The company shall invest
19850H1962B2642 - 94 -
1 the reserve fund in first mortgage or other securities
2 designated by law as legal investments for trust funds whenever
3 the accumulated fund amounts to $1,000 or more. The mortgages or
4 other securities shall be carried at cost price, but not at more
5 than market price. If there is a depreciation in the market
6 price of any securities, the company shall make good the
7 depreciation by the addition of other legal investments so that
8 the fund shall always be maintained at the full amount required
9 by subsection (b). The companies may withdraw from the fund any
10 mortgages or other securities held therein by crediting the fund
11 the amount at which the mortgages or securities are valued if
12 there are immediately substituted therefor other first mortgages
13 or securities.
14 (e) Cancellation of policy.--Whenever any policy of title
15 insurance is surrendered by the holder, canceled or liability
16 thereon completely discharged, the reserve therefor may be
17 withdrawn or credited against reserves that may be due.
18 (f) Status of reserve fund to be a trust fund.--The reserve
19 fund shall be kept separate and apart from the other assets of
20 the company. The income of the reserve fund shall become part of
21 the general assets of the company. The reserve fund shall
22 constitute a separate and distinct trust fund for the protection
23 of policyholders and shall not be subject to distribution among
24 depositors or other creditors until all policyholders have been
25 paid in full or the liability on the policies contingent or
26 actual has been completely discharged.
27 (g) Reinsurance by commissioner.--If the commissioner takes
28 possession of and winds up any company, the commissioner may use
29 the reserve fund to purchase reinsurance for the liabilities
30 represented by the policies outstanding against the fund.
19850H1962B2642 - 95 -
1 Acceptance of the policy of the reinsuring company shall operate
2 as a complete discharge of liability under the policy of the
3 insolvent company. If any policyholder refuses to accept the
4 policy of the reinsuring company, he shall be entitled to
5 receive only the pro rata portion of his reserve that remains
6 upon distribution under subsection (h).
7 (h) Distribution of reserve fund.--The reserve fund in the
8 custody of the commissioner shall be liable only to the
9 following claims:
10 (1) To pay all outstanding claims of indemnity that have
11 arisen by virtue of any policies of insurance.
12 (2) For the purchase of reinsurance to indemnify and
13 protect the remaining outstanding policies.
14 (3) To distribute among policyholders, upon cancellation
15 of their policies, the proportionate share of the reserve
16 fund to which they are entitled, which shall not exceed the
17 proportion which the premium paid for the policy bears to the
18 whole amount of title insurance then outstanding.
19 § 752. Reinsurance on liquidation of company.
20 Whenever the commissioner purchases reinsurance under section
21 751 (relating to title insurance reserve), he may do so by
22 purchasing, from a company incorporated under the law of this
23 Commonwealth with the right to insure titles to real estate to
24 owners, mortgagees and others and having a title insurance
25 reserve of the maximum amount required by section 751, a blanket
26 policy in the name of the Commonwealth for the use of the
27 original policyholders. In this blanket policy, the title
28 insurance company shall agree that it will, on demand of anyone
29 holding an outstanding policy issued by the original company,
30 fulfill for the policyholder the same obligations as were due to
19850H1962B2642 - 96 -
1 him under the original policy, but the amount of recoverable
2 damages shall be limited in accordance with section 753
3 (relating to recovery by policyholders).
4 § 753. Recovery by policyholders.
5 (a) Determinations of insurance and liability.--Prior to
6 purchasing reinsurance, the commissioner shall determine the
7 total amount of insurance issued by the corporation of which he
8 has taken possession and the amount of this insurance upon which
9 the corporation had an outstanding liability on the day the
10 corporation came into his custody. The commissioner shall file
11 written certificates of these determinations in his office and
12 in the records of the court under which his certificate of
13 possession is filed.
14 (b) Reinsurance policy.--The commissioner shall then use the
15 reserve fund in his custody to pay the fee for examinations by
16 the reinsuring company and to purchase as large an amount of
17 insurance as can be acquired. The blanket policy for reinsurance
18 shall contain a clause that each policyholder of the company
19 which originally issued the insurance reinsured shall be
20 entitled to recover in his own name, not according to the amount
21 of the original policy, but in the proportion that the total
22 amount of the reinsurance purchased bears to the total amount of
23 outstanding insurance determined to be in existence by the
24 commissioner and shown by the certificates executed under this
25 section.
26 (c) Limitations on reinsurance liability.--The total
27 liability of the reinsuring company shall not exceed the amount
28 of the blanket policy issued under section 752 (relating to
29 reinsurance on liquidation of company) and shall not be enlarged
30 beyond that of the original company. Claims by policyholders
19850H1962B2642 - 97 -
1 against the reinsuring company shall be subject to all the
2 conditions and limitations of the original insurance as respects
3 the status of the claim and claimant.
4 (d) Rights of policyholders.--Each policyholder of the
5 company which originally issued the insurance reinsured may sue
6 the reinsurance carrier, using his own name as plaintiff,
7 notwithstanding the fact that the reinsurance policy is issued
8 in the name of the Commonwealth.
9 CHAPTER 9
10 DEPOSITS OF SECURITIES TO DO INTERSTATE BUSINESS
11 Sec.
12 901. Deposit of securities with commissioner.
13 902. State Treasurer as custodian.
14 903. Return of securities.
15 904. Actions in equity regarding deposits.
16 § 901. Deposit of securities with commissioner.
17 Any domestic insurance entity desiring to transact business
18 in other states, where the law requires that the entity first
19 deposit securities of a designated value with the commissioner
20 or other proper officer of this Commonwealth in trust and for
21 the benefit of all its policyholders, or any foreign or alien
22 insurance company or association desiring to make the deposit
23 required of foreign companies or associations in order to
24 transact business in the United States, may deposit with the
25 commissioner securities for such an amount as the law of the
26 other states designate, or as the law of this Commonwealth
27 requires for foreign companies or associations. If the
28 commissioner is satisfied that the securities are worth the
29 required amount, he shall receive them or those given in
30 exchange therefor for the purpose of this section. Upon the
19850H1962B2642 - 98 -
1 written request of the insurance entity, the commissioner shall
2 further certify, under his hand and official seal to the proper
3 officer of the other state in which the insurance entity desires
4 to transact business or the official of the Federal Government,
5 that the entity has deposited securities with him, list the
6 securities and certify that he is satisfied they are worth the
7 sum designated by the law of the other state or required by the
8 Federal Government.
9 § 902. State Treasurer as custodian.
10 Upon receipt of any deposit made under section 901 (relating
11 to deposit of securities with commissioner), the commissioner
12 shall immediately place them with the State Treasurer, who shall
13 receive and hold them in the name of the Commonwealth in trust
14 for the purposes for which the deposit is made. The State
15 Treasurer shall be responsible for their custody and
16 safekeeping. The entity making the deposit may from time to time
17 demand and receive from the State Treasurer, on the written
18 order of the commissioner, all or any portion of the securities
19 so deposited, upon depositing with him other securities of at
20 least equal value and may demand, receive, sue for and recover
21 the interest and income from the securities from the payee or
22 obligee thereof as these become due and payable.
23 § 903. Return of securities.
24 Upon request of any domestic entity which has made a deposit
25 under this chapter, the commissioner may authorize the State
26 Treasurer to return to the entity the whole or any portion of
27 the securities held by him on deposit, if the commissioner is
28 satisfied that the securities are subject to no liability and
29 are not required to be longer held under this title, or for the
30 purpose of the original deposit. He may in like manner return to
19850H1962B2642 - 99 -
1 the trustees or other representatives of a foreign or alien
2 insurance company or association authorized for that purpose any
3 deposit made by the company, if the company or association has
4 ceased to do business in this Commonwealth and is under no
5 obligation to policyholders or other persons in this
6 Commonwealth or in the United States, for whose benefit the
7 deposit was made. A deposit shall not be wholly withdrawn or
8 diminished so long as any liability to policy holders remains
9 unsatisfied, except in case of dissolution by a court of any
10 entity making the deposit, in which case the State Treasurer
11 shall, upon the written order of the court, assign and transfer
12 to the receiver all securities or funds in his possession
13 belonging to the entity.
14 § 904. Actions in equity regarding deposits.
15 An insurance entity which has made a deposit under this
16 chapter, or its trustees or resident manager in the United
17 States, or the commissioner, may bring an action in equity
18 against the Commonwealth and other parties properly joined
19 therein, to enforce, administer or terminate the trust created
20 by the deposit. The process in the action shall be served on the
21 State Treasurer, who shall appear and answer on behalf of the
22 Commonwealth and perform such orders and decrees as the court
23 may make.
24 CHAPTER 11
25 AGENTS AND BROKERS
26 Subchapter
27 A. Agents
28 B. Automobile Insurance
29 C. Insurance Brokers
30 D. Agents and Brokers
19850H1962B2642 - 100 -
1 E. Managers and Exclusive General Agents
2 F. Public Adjusters and Solicitors
3 G. Public Remedies for Unlicensed Activity
4 SUBCHAPTER A
5 AGENTS
6 Sec.
7 1101. Definition of agent.
8 1102. Certification of agents.
9 1103. Licenses of agents.
10 1104. Penalty for doing business as agent without license.
11 1105. Personal liability of agents for unauthorized entity.
12 1106. Penalty for advertising as agent of unauthorized entity.
13 1107. Penalty for soliciting for nonexistent company.
14 1108. Licensure of nonresident agents.
15 § 1101. Definition of agent.
16 (a) General rule.--As used in this chapter the term "agent"
17 means any of the following:
18 (1) Any person authorized in writing by an entity:
19 (i) to solicit risks and collect premiums and to
20 issue or countersign policies in its behalf; or
21 (ii) to solicit risks and collect premiums in its
22 behalf.
23 (2) A person, not a licensed insurance broker, who:
24 (i) solicits insurance on behalf of any insurance
25 entity, whether or not for compensation;
26 (ii) transmits for a person other than himself an
27 application for a policy of insurance to or from the
28 entity;
29 (iii) offers or assumes to act in the negotiation of
30 such insurance; or
19850H1962B2642 - 101 -
1 (iv) in any manner aids in transacting the insurance
2 business of any entity by negotiating for or placing
3 risks or delivering policies or collecting premiums for
4 the entity.
5 (b) Exclusions.--The term "agent" does not include:
6 (1) Nonresident salaried employees of foreign exchanges
7 which maintain no offices in this Commonwealth and pay no
8 commissions to such employees.
9 (2) Officers or salaried employees of any insurance
10 entity authorized to transact business in this Commonwealth
11 who do not solicit, negotiate or place risks.
12 (3) Attorneys at law.
13 (4) Licensed real estate agents.
14 (5) Real estate brokers.
15 (6) Title insurance agents.
16 § 1102. Certification of agents.
17 Insurance entities authorized by law to transact business
18 this Commonwealth shall from time to time certify to the
19 commissioner the names of all agents appointed by them to
20 solicit insurance in this Commonwealth.
21 § 1103. Licenses of agents.
22 (a) Power to issue license.--The commissioner may issue,
23 upon certification under section 1102 (relating to certification
24 of agents), an agent's license to any person of at least 18
25 years of age and to any partnership or corporation.
26 (b) Limitations.--A license as agent shall not be granted to
27 any corporation unless by provisions of its charter it is
28 authorized to engage in the business of insurance or real estate
29 and unless individual licenses are also secured for each active
30 officer of such corporation. A license shall not be granted to a
19850H1962B2642 - 102 -
1 partnership or association unless individual licenses are also
2 secured for each active member of the partnership or
3 association.
4 (c) Requirements for licensure.--Before the license is
5 granted, the applicant shall first complete a verified
6 application in a form determined by the commissioner. The
7 application shall be verified by the applicant and shall be
8 accompanied by a verified statement by the entity interested
9 that the applicant is of good business reputation, has
10 experience in underwriting, other than soliciting, and is worthy
11 of a license. Any applicant who has held, for any period during
12 the five years immediately preceding the application, a license
13 to transact as agent any class or kind of insurance business for
14 any entity authorized to transact business in this Commonwealth
15 may, upon proper application, receive a license to transact as
16 agent the same class or kind of insurance business for any other
17 entity which is so authorized, without submitting to an
18 examination. Agents' license fees shall be paid in full at the
19 time of issuance and shall not be apportioned pro rata over the
20 initial license period.
21 (d) License.--When the commissioner is satisfied that the
22 applicant is worthy of license and that he is reasonably
23 familiar with provisions of the insurance law of this
24 Commonwealth, he shall issue a license. The license shall state
25 that the entity represented by the agent has complied with this
26 title and has been authorized by the commissioner to transact
27 business in this Commonwealth and that the agent has been
28 appointed by that entity.
29 (e) Expiration.--The licenses of life insurance agents shall
30 expire annually on March 31. The licenses of fire insurance
19850H1962B2642 - 103 -
1 agents shall expire annually on September 30, and the licenses
2 of casualty and health and accident insurance agents shall
3 expire annually on December 31, unless sooner terminated as the
4 result of severance of business relations between the entity and
5 the agent or unless revoked by the commissioner for cause.
6 (f) Domestic mutual fire insurance companies.--This section
7 applies to domestic mutual fire insurance companies, but no
8 agent of such a company acting or authorized to act as such
9 shall be required to take an examination for licensure.
10 Subsection (a) does not require agents of domestic mutual fire
11 insurance companies, which agents write only coverages other
12 than insurance upon automobiles authorized by section
13 3302(b)(1), (2) and (3) (relating to authorized classes of
14 insurance), to submit to examination prior to licensure by the
15 commissioner.
16 (g) Exemption from examination.--The examination provided
17 for in subsection (a) shall not be required of any person who
18 has received the designation of Chartered Life Underwriter
19 (C.L.U.) from the American College of Life Underwriters, except
20 that the person may be examined on pertinent provisions of the
21 insurance law as determined by the commissioner.
22 § 1104. Penalty for doing business as agent without license.
23 A person commits a misdemeanor of the third degree if he
24 transacts business in this Commonwealth as the agent of an
25 insurance entity without a license as required by this chapter
26 and, upon conviction, shall be sentenced to pay a fine of not
27 more than $1,000. Prosecutions for violations under this section
28 may be instituted by the commissioner.
29 § 1105. Personal liability of agents for unauthorized entity.
30 An insurance agent shall be personally liable on all
19850H1962B2642 - 104 -
1 contracts of insurance or suretyship unlawfully made by or
2 through him, directly or indirectly, for or in behalf of any
3 entity not authorized to do business in this Commonwealth.
4 § 1106. Penalty for advertising as agent of unauthorized
5 entity.
6 Any person who represents or advertises himself as the agent
7 of any foreign or alien insurance entity which has not complied
8 with the law of this Commonwealth commits a misdemeanor of the
9 third degree and, upon conviction, shall be sentenced to pay a
10 fine of not more than $1,000.
11 § 1107. Penalty for soliciting for nonexistent company.
12 Any individual, and the officers, managers, agents, owners or
13 representatives of and any corporation, partnership or
14 association, offering in this Commonwealth to sell, procure or
15 obtain policies, certificates, agreements, binders or
16 applications for insurance, surety or indemnity, for or on
17 behalf of any spurious, fictitious, nonexistent, dissolved,
18 inactive, liquidated, liquidating or bankrupt insurance entity,
19 society or order, commits a misdemeanor of the third degree.
20 § 1108. Licensure of nonresident agents.
21 (a) General rule.--The commissioner may issue a license as
22 agent to a person not resident of this Commonwealth, upon
23 compliance with the applicable provisions of this chapter, if
24 the state or the province of the Dominion of Canada of the
25 person's residence accords the same privilege to a resident of
26 this Commonwealth.
27 (b) Waiver of written examination.--The commissioner may
28 enter into reciprocal agreements with the appropriate official
29 of any such other state or province waiving the written
30 examination of any applicant resident in the other state or
19850H1962B2642 - 105 -
1 province if the following conditions obtain:
2 (1) A written examination is required of applicants for
3 an insurance agent's license in the other state or province.
4 (2) The appropriate official certifies that the
5 applicant holds a currently valid license as an insurance
6 agent in the other state or province and either passed a
7 written examination or was the holder of an insurance agent's
8 license prior to the time a written examination was required.
9 (3) In the other state or province a resident of this
10 Commonwealth may obtain an insurance agent's license upon the
11 conditions stated in this subsection, without discrimination
12 as to fees or otherwise in favor of the residents of the
13 other state or province.
14 (c) Life insurance agents.--An applicant or licensee may not
15 have a place of business in this Commonwealth or be an officer,
16 director, stockholder or partner in any corporation or
17 partnership doing business in this Commonwealth as a life
18 insurance agency.
19 (d) Sharing of commissions.--If the law of another state or
20 province of the Dominion of Canada requires the sharing of
21 commissions with resident agents of the state or province on
22 applications for insurance written by nonresident agents, then
23 the same provisions shall apply when resident agents of that
24 state or province licensed as nonresident agents in this
25 Commonwealth write applications for insurance on residents of
26 this Commonwealth.
27 SUBCHAPTER B
28 AUTOMOBILE INSURANCE
29 Sec.
30 1121. Definitions.
19850H1962B2642 - 106 -
1 1122. Cancellation of contract.
2 1123. Continuation of business.
3 1124. Exclusions.
4 1125. Penalties.
5 § 1121. Definitions.
6 The following words and phrases when used in this subchapter
7 shall have the meanings given to them in this section unless the
8 context clearly indicates otherwise:
9 "Agent." An insurance agent authorized to transact and
10 transacting the business of automobile insurance in this
11 Commonwealth.
12 "Insurer." An insurance entity authorized to transact and
13 transacting the business of automobile insurance in this
14 Commonwealth.
15 § 1122. Cancellation of contract.
16 (a) Notice.--After an agency contract has been in effect for
17 a period of five years, no insurer shall terminate its contract
18 with an agent without first providing the agent and the
19 commissioner with written notification at least 90 days prior to
20 the date of termination. The notification shall set forth the
21 insurer's reason for the action.
22 (b) Privileged information.--Any information, document,
23 record or statement so furnished or disclosed to the
24 commissioner shall be absolutely privileged and shall not be
25 admissible as evidence in or as basis for any action against the
26 appointing insurer or against any representative of that
27 insurer.
28 (c) Administrative review.--Any agent may, within 30 days of
29 receipt of notice of termination, request in writing to the
30 commissioner that he review the action of the insurer for the
19850H1962B2642 - 107 -
1 purpose of determining whether the termination was in compliance
2 with this section.
3 (d) Restriction on termination.--An insurer shall not
4 terminate its contract with an agent due to the adverse
5 experience of a single year. Prior to termination it is the
6 obligation of the insurer to demonstrate that it has made a
7 reasonable attempt to rehabilitate the agent.
8 § 1123. Continuation of business.
9 (a) Policies.--If an insurer notifies an agent that its
10 contract will be terminated, the insurer shall offer to continue
11 the policies and any amendments thereto made through the agent
12 for a period of 12 months from the effective date of
13 termination, subject to the insurer's current underwriting
14 standards.
15 (b) Commissions.--The terminated agent shall be entitled to
16 receive commissions on account of all business continued or
17 written pursuant to this section at the insurer's prevailing
18 commission rate for the business.
19 (c) Application of section.--This section does not apply to
20 a business owned by the insurer, and not by the agent, if the
21 insurer offers to continue policies through another of its
22 agents.
23 § 1124. Exclusions.
24 (a) Construction of subchapter.--This subchapter does not
25 prohibit an amendment or addendum subsequent to the inception
26 date of the original agency agreement providing that the
27 original agency agreement may be terminated at a sooner time
28 than is required by this subchapter if the agent agrees in
29 writing to the termination.
30 (b) Certain terminations excepted.--This subchapter does not
19850H1962B2642 - 108 -
1 apply to an agent whose license has been revoked by the
2 commissioner or whose contract has been terminated for
3 insolvency, abandonment, gross incompetence, gross and willful
4 misconduct or failure to pay over to the insurer moneys due to
5 the insurer after his receipt of a written demand therefor.
6 § 1125. Penalties.
7 (a) Summary offense.--Any person, agent or insurer who
8 willfully violates this subchapter commits a summary offense
9 and, upon conviction, shall be sentenced to pay a fine not
10 exceeding $500. A conviction under this subsection does not bar
11 administrative action by the commissioner under this section.
12 (b) Administrative action.--Upon satisfactory evidence of a
13 violation of this subchapter, the commissioner may do any or all
14 of the following:
15 (1) Suspend or revoke the license of the person, agent
16 or insurer.
17 (2) Refuse, for a period not to exceed one year
18 thereafter, to issue him a new license or to renew his
19 license.
20 (3) Impose a civil penalty of not more than $500 for
21 each act in violation of this subchapter.
22 (c) Review and appeal.--Any adjudication of the commissioner
23 under subsection (b) shall be subject to review and appeal in
24 accordance with Title 2 (relating to administrative law and
25 procedure).
26 SUBCHAPTER C
27 INSURANCE BROKERS
28 Sec.
29 1131. Definition.
30 1132. Licenses of brokers.
19850H1962B2642 - 109 -
1 1133. Penalty for acting as broker without license.
2 1134. Doing business with unlicensed brokers.
3 1135. Payment of commissions to brokers.
4 § 1131. Definition.
5 As used in this subchapter and Subchapter D (relating to
6 agents and brokers) the term "insurance broker" means a person,
7 not an officer or agent of the entity interested, who, for
8 compensation, acts or aids in any manner in obtaining insurance,
9 other than title insurance, for a person other than himself.
10 § 1132. Licenses of brokers.
11 (a) Power to issue licenses.--The commissioner may issue to
12 any individual of at least 18 years of age or to any partnership
13 or corporation a license to act as an insurance broker to
14 negotiate contracts of insurance or reinsurance with any
15 insurance entity or the agents thereof authorized by law to
16 transact business in this Commonwealth.
17 (b) Limitations.--A license shall not be issued to any
18 corporation to act as an insurance broker unless by its charter
19 it is authorized to engage in the business of insurance or real
20 estate.
21 (c) Application for license.--Before the license is issued,
22 the applicant shall first complete an application in a form
23 determined by the commissioner. The application shall be
24 verified by the applicant and shall be accompanied by a verified
25 statement of at least two agents or the officers of any
26 insurance entity acquainted with the applicant, to the effect
27 that the applicant is of good business reputation, has
28 experience in underwriting, other than soliciting, and is worthy
29 of a license. Brokers' license fees shall be paid in full at the
30 time of issuance and shall not be apportioned pro rata over the
19850H1962B2642 - 110 -
1 initial license period.
2 (d) License.--When the commissioner is satisfied that the
3 applicant is worthy of a license and that he is reasonably
4 familiar with the insurance law of this Commonwealth, he shall
5 issue a broker's license to expire annually one year from date
6 of issue, unless sooner revoked by the commissioner for cause.
7 § 1133. Penalty for acting as broker without license.
8 Any person transacting business as an insurance broker in
9 this Commonwealth, or soliciting insurance or transmitting for
10 another partnership, association or corporation an application
11 for a policy of insurance, or offering or assuming to act in the
12 negotiation of such insurance or in any manner aiding in
13 transacting an insurance business, or negotiating for or placing
14 risks, or delivering policies or collecting premiums for
15 policies which are effective in this Commonwealth without a
16 license as broker, or in the case of title insurance without
17 being admitted to practice as an attorney at law or being
18 licensed as a real estate broker or real estate agent, unless
19 the person is acting as a licensed agent and then only for the
20 companies the person is licensed by this Commonwealth to
21 represent, commits a misdemeanor of the third degree and, upon
22 conviction, shall be sentenced to pay a fine not exceeding
23 $1,000.
24 § 1134. Doing business with unlicensed brokers.
25 Any entity or the agent of any entity accepting applications
26 or orders for insurance or securing any insurance business
27 through anyone acting without a license commits a misdemeanor of
28 the third degree and, upon conviction, shall be sentenced to pay
29 a fine not exceeding $1,000. Prosecutions for violations under
30 this section may be instituted by the commissioner.
19850H1962B2642 - 111 -
1 § 1135. Payment of commissions to brokers.
2 Any insurance entity or the agent thereof may pay money,
3 commission or brokerage, or give or allow anything of value to a
4 duly licensed insurance broker for the solicitation or
5 negotiation of contracts for insurance on property or risks in
6 this Commonwealth.
7 SUBCHAPTER D
8 AGENTS AND BROKERS
9 Sec.
10 1141. Penalty for acting for entities failing to authorize
11 substituted service.
12 1142. Larceny.
13 1143. Fiduciary capacity.
14 1144. Paying or receiving compensation for certain life
15 insurance.
16 1145. Offering rebates and inducements.
17 1146. Acceptance of rebates.
18 1147. Misrepresentation of policy terms.
19 1148. Misrepresentation to induce change of insurers.
20 1149. Penalties imposed by commissioner.
21 1150. Exemption for licensure.
22 § 1141. Penalty for acting for entities failing to authorize
23 substituted service.
24 Any person acting as agent or broker for himself or for
25 others, not having been specially and lawfully licensed so to
26 do, who solicits or procures, or aids in the solicitation or
27 procurement of, policies or certificates of insurance from, or
28 adjusts losses, or in any manner aids in the transaction of any
29 business for, any foreign insurance entity which has not
30 executed and filed with the commissioner a written appointment
19850H1962B2642 - 112 -
1 of the commissioner to be the true and lawful attorney of the
2 entity in and for this Commonwealth upon whom all lawful process
3 in any action or proceeding against the entity may be served,
4 commits a misdemeanor of the third degree and, upon conviction,
5 shall be sentenced to pay a fine of not less than $300 and not
6 more than $1,000.
7 § 1142. Larceny.
8 An insurance agent or broker who acts in negotiating a
9 contract of insurance for an insurance entity lawfully doing
10 business in this Commonwealth and who embezzles or fraudulently
11 converts to his own use or who, with intent to use or embezzle,
12 takes, secretes or otherwise disposes of, or fraudulently
13 withholds, appropriates, lends, invests or otherwise uses or
14 applies, any money or substitutes for money received by him as
15 agent or broker, contrary to the instructions or without the
16 consent of the entity for or on account of which the same was
17 received by him, commits theft and shall be punished as required
18 under Title 18 (relating to crimes and offenses).
19 § 1143. Fiduciary capacity.
20 Every insurance agent and broker acting as such in this
21 Commonwealth shall be responsible in a fiduciary capacity for
22 all funds received or collected as insurance agent or broker and
23 shall not, without the express consent of his principal, mingle
24 any such funds with his own funds or with funds held by him in
25 any other capacity. This section does not require the agent or
26 broker to maintain a separate bank deposit for the funds of each
27 principal if the funds held for each principal are reasonably
28 ascertainable from the books of account and records of agent or
29 broker.
30 § 1144. Paying or receiving compensation for certain life
19850H1962B2642 - 113 -
1 insurance.
2 (a) General rule.--A person, insurance agent, broker,
3 solicitor or representative shall not pay or cause to be paid
4 any commission or compensation to any attorney at law, partner,
5 clerk, servant, employee or other person, however hired or
6 employed by or with any insured or any beneficiary named in any
7 policy of life insurance. An attorney at law, partner, clerk,
8 servant, employee or any other person, however hired or employed
9 by or with any insured or any beneficiary named in any policy of
10 life insurance shall not receive, directly or indirectly, any
11 commission, compensation or other benefit by reason of the life
12 insurance being placed, sold or solicited on the life or for the
13 benefit of their respective clients, employers or masters. An
14 attorney at law, officer, clerk, servant or employee of any
15 corporation, partnership, association or individual shall not
16 receive, directly or indirectly, any commission, compensation or
17 benefit by reason of any life insurance being placed, sold or
18 solicited on the life or for the benefit of any attorney at law,
19 officer, clerk, servant or employee of the same corporation,
20 partnership, association or individual, whether or not the
21 attorney, partner, officer, clerk, servant, employee or other
22 person hired or employed by or with the insured or of any
23 beneficiary named in any policy of life insurance is duly
24 licensed by the proper authority in this Commonwealth to place,
25 sell or solicit life insurance.
26 (b) Applicability.--Every such attorney at law, partner,
27 officer, clerk, servant, employee or other person hired or
28 employed or continuing to be hired or employed in that capacity
29 within 90 days before or after the placing, selling or
30 soliciting of life insurance on the life or for the benefit of
19850H1962B2642 - 114 -
1 their respective clients, partners, officers, employees, masters
2 or person in that capacity or any of them, shall be subject to
3 the provisions of this section.
4 (c) Penalty.--Every person, partnership or corporation
5 participating in the payment or receipt of any compensation or
6 benefit in violation of this section commits a misdemeanor of
7 the third degree and, upon conviction, shall be sentenced to pay
8 a fine of not more than $1,000 payable to the Commonwealth, and
9 to undergo imprisonment of not less than 30 days nor more than
10 six months.
11 § 1145. Offering rebates and inducements.
12 An insurance agent, solicitor or broker shall not offer or
13 give, directly or indirectly, any rebate of, or part of, the
14 premium payable on the policy or the agent's commission thereon,
15 or earnings, profit, dividends or other benefit founded,
16 arising, accruing or to accrue thereon or therefrom, or any
17 special advantage in date of policy or age of issue, or any paid
18 employment or contract for services of any kind, or any other
19 valuable consideration or inducement, to or for insurance on any
20 risk in this Commonwealth, which is not specified in the policy
21 contract of insurance. An insurance agent, solicitor or broker
22 shall not personally or otherwise offer, give, option, sell or
23 purchase any stocks, bonds, securities or property, or any
24 dividends or profits accruing or to accrue thereon, or other
25 thing of value, as inducement to insurance or in connection
26 therewith. This section does not prevent the taking of a bona
27 fide obligation, with legal interest, in payment of any premium.
28 § 1146. Acceptance of rebates.
29 An insured person or party or applicant for insurance shall
30 not directly or indirectly receive or accept, or agree to
19850H1962B2642 - 115 -
1 receive or accept, any rebate of premium or any part thereof, or
2 all or any part of any agent's, solicitor's or broker's
3 commission thereon, or any favor, advantage or share in any
4 benefit to accrue under any policy of insurance, or any valuable
5 consideration or inducement, other than those specified in the
6 policy.
7 § 1147. Misrepresentation of policy terms.
8 An agent or solicitor of an insurance entity or an insurance
9 broker shall not issue, circulate, use or cause or permit to be
10 issued, circulated or used, any written or oral statement or
11 circular misrepresenting the terms of any policy issued or to be
12 issued by the entity or make an estimate, with intent to
13 deceive, of the future dividends payable under the policy.
14 § 1148. Misrepresentation to induce change of insurers.
15 An agent or solicitor of an insurance entity or an insurance
16 broker, or any person, partnership, association or corporation
17 in behalf of the agent, solicitor or broker, shall not make any
18 misrepresentation or incomplete comparison of policies, oral,
19 written or otherwise, to any person insured by any entity for
20 the purpose of inducing or tending to induce a policyholder in
21 the entity to lapse, forfeit or surrender his insurance therein
22 and to take out a policy of insurance in another entity insuring
23 against similar risks.
24 § 1149. Penalties imposed by commissioner.
25 (a) General rule.--Upon satisfactory evidence of the
26 violation of section 1104 (relating to penalty for doing
27 business as agent without license), 1106 (relating to penalty
28 for advertising as agent of unauthorized entity), 1107 (relating
29 to penalty for soliciting for nonexistent company) or 1133
30 (relating to penalty for acting as broker without license) by
19850H1962B2642 - 116 -
1 any agent or solicitor of any insurance entity or by any
2 insurance broker or upon satisfactory evidence of such conduct
3 as would disqualify the agent or broker from initial issuance of
4 a license under section 1103 (relating to licenses of agents) or
5 1132 (relating to licenses of brokers), the commissioner may
6 pursue any one or more of the following courses of action
7 regardless of whether the agent, solicitor or broker was
8 licensed by the commissioner:
9 (1) Suspend or revoke or refuse to renew the license of
10 offending party or parties.
11 (2) Impose a civil penalty of not more than $1,000 for
12 each act in violation of any of the criminal provisions.
13 (b) Hearing.--The commissioner shall hold a hearing before
14 taking action under subsection (a). He shall give written notice
15 of the hearing to the person or entity accused, stating
16 specifically the nature of the alleged violation and fixing a
17 time and place, at least ten days thereafter, when the hearing
18 shall be held.
19 (c) Criminal penalty.--Any agent or solicitor of any
20 insurance entity, insurance broker or other person or
21 corporation violating section 1143 (relating to fiduciary
22 capacity), 1145 (relating to offering rebates and inducements),
23 1146 (relating to acceptance of rebates), 1147 (relating to
24 misrepresentation of policy terms) or 1148 (relating to
25 misrepresentation to induce change of insurers) commits a
26 misdemeanor of the third degree and, upon conviction, shall be
27 sentenced to pay a fine of not more than one $1,000 for each
28 violation, or to imprisonment for a period of not more than six
29 months, or both.
30 (d) Production of evidence.--A person shall not be excused
19850H1962B2642 - 117 -
1 from testifying, or from producing any books, papers, contracts
2 or documents, at any hearing held by the commissioner or at the
3 trial or hearing before any magistrate or judge, of any person
4 charged with violating section 1145, 1146, 1147 or 1148 on the
5 ground that the testimony or evidence may tend to incriminate
6 himself, but no person shall be prosecuted for any act
7 concerning which he shall be compelled to testify or produce
8 evidence except for perjury committed in testifying.
9 § 1150. Exemption from licensure.
10 (a) General rule.--A lending institution, public utility,
11 bank holding company, savings and loan holding company or any
12 subsidiary affiliate, officer or employee thereof may not,
13 directly or indirectly, be licensed or admitted as an insurer or
14 be licensed to sell insurance in this Commonwealth either as a
15 broker or agent except that a lending institution or bank
16 holding company, subsidiary or affiliate of a lending
17 institution may be licensed to sell credit life, health and
18 accident insurance and to sell and underwrite title insurance in
19 accordance with regulations promulgated by the commissioner.
20 (b) Authority of commissioner.--The commissioner may
21 promulgate regulations in order to effectuate the purposes of
22 this section, which are to help maintain the separation between
23 lending institutions and public utilities and the insurance
24 business and to minimize the possibility of unfair competitive
25 practices by lending institutions and public utilities against
26 insurance companies, agents and brokers.
27 (c) Exclusion.--This section does not apply to any lending
28 institution, bank holding company, savings and loan holding
29 company, public utility or public utility holding company, or
30 any subsidiary or affiliate of the foregoing, or any officer,
19850H1962B2642 - 118 -
1 director or employee thereof licensed as an insurance agent or
2 broker or insurer in this Commonwealth on or before February 28,
3 1975.
4 (d) Definitions.--As used in this section the following
5 words and phrases shall have the meanings given to them in this
6 subsection:
7 "Affiliate." Includes any bank holding company, savings and
8 loan holding company or public utility holding company. The term
9 does not include a person owning an interest in a corporation if
10 the ownership interest is not sufficient to permit exercise of
11 effective control, and does not involve direct or indirect
12 ownership or control of 5% or more of the voting stock of the
13 corporation or a corporation whose stock is owned by another
14 person, if the amount of stock owned by any one person does not
15 permit effective control and does not exceed 5% of the voting
16 stock of the corporation.
17 "Bank holding company." As defined in section 2 of the Bank
18 Holding Company Act of 1956 (70 Stat. 133, 12 U.S.C. § 1841).
19 The term does not include a bank holding company which has been
20 granted an exemption on or before February 28, 1975, by the
21 Board of Governors of the Federal Reserve System pursuant to
22 section 4(d) of the Bank Holding Company Act of 1956 (70 Stat.
23 135, 12 U.S.C. § 1843(d)).
24 "Deposits." As defined in the Federal act of September 21,
25 1950, c. 967, § 2(3) (12 U.S.C. § 1813(l)).
26 "Public utility." Does not include rural electrification
27 cooperatives.
28 "Public utility holding company." As defined in the Federal
29 act of August 26, 1935, c. 687, § 2 (15 U.S.C. § 79b(a)(7))
30 including electric, gas, water and steam heat services.
19850H1962B2642 - 119 -
1 "Savings and loan holding company." As defined in the
2 Federal act of June 27, 1934, c. 847, § 408 (12 U.S.C. §
3 1730a(a)(1)(D)).
4 "Title insurance." As defined in section 6701 (relating to
5 definitions).
6 SUBCHAPTER E
7 MANAGERS AND EXCLUSIVE GENERAL AGENTS
8 Sec.
9 1161. Certification.
10 1162. Licensure.
11 1163. Exclusion, sale or transfer.
12 1164. Revocation and suspension of license.
13 1165. Penalties.
14 § 1161. Certification.
15 Every domestic insurance company operating under a management
16 contract or an exclusive general agency agreement entered into
17 after December 22, 1965, shall certify to the commissioner the
18 name of the manager or exclusive general agent within ten days
19 from the effective date of the contract or agreement and within
20 ten days after the renewal of the license of the manager or
21 exclusive general agent. Certification is not required for an
22 agent or general agent whose authority is limited primarily to
23 production of insurance business with limited underwriting
24 authority. For the purpose of this subchapter the terms
25 "manager" and "exclusive general agent" include partnerships or
26 corporations.
27 § 1162. Licensure.
28 (a) General rule.--A manager or exclusive general agent,
29 except an agent or general agent whose authority is limited
30 primarily to production of insurance business with limited
19850H1962B2642 - 120 -
1 underwriting authority, shall not engage in any activities for
2 which the manager or exclusive general agent is authorized,
3 empowered or designated by a domestic insurance company unless
4 he has been licensed as such by the commissioner.
5 (b) Qualifications.--Upon application filed under rules and
6 regulations prescribed by the commissioner, a manager's license
7 or an exclusive general agent's license may be issued if the
8 commissioner is satisfied that the applicant is of good business
9 reputation and has the responsibility, general character and
10 fitness for the business and that the applicant is worthy of the
11 license.
12 (c) Duration and fee.--Licenses issued under this section
13 shall be in effect for a period of one year from date of
14 issuance. The commissioner shall charge and collect the annual
15 license fee.
16 § 1163. Exclusion, sale or transfer.
17 A manager or exclusive general agent operating under any
18 management contract or exclusive general agency agreement
19 entered into prior to December 22, 1965, shall not be subject to
20 section 1162 (relating to licensure). However, any sale,
21 assignment or transfer of any management contract or exclusive
22 general agency agreement, whether or not the contract or
23 agreement was entered into before December 22, 1965, shall make
24 the purchaser, assignee or transferee subject to the licensing
25 provisions of section 1162, and the companies shall make the
26 certification under section 1161 (relating to certification).
27 § 1164. Revocation and suspension of license.
28 (a) Power to discipline licensee.--The commissioner, upon
29 satisfactory evidence of conduct that would disqualify a
30 licensed manager or exclusive general agent from initial
19850H1962B2642 - 121 -
1 issuance of a license under section 1162 (relating to
2 licensure), may suspend or revoke or refuse to renew the license
3 of the manager or exclusive general agent.
4 (b) Hearing.--The commissioner shall hold a hearing before
5 taking action under subsection (a). He shall give written notice
6 of the hearing to the manager or exclusive general agent,
7 stating specifically the nature of the alleged conduct and
8 fixing a time and place at least ten days thereafter when the
9 hearing shall be held.
10 § 1165. Penalties.
11 (a) Acting without license.--Any individual, partnership or
12 corporation acting as a manager or exclusive general agent of a
13 domestic insurance company without a license under this
14 subchapter commits a misdemeanor of the third degree and, upon
15 conviction, shall be sentenced to pay a fine not exceeding
16 $1,000 for each day of operation without a license.
17 (b) Failure to certify.--Any domestic insurance company
18 which fails to file the certification required by section 1161
19 (relating to certification) commits a misdemeanor of the third
20 degree and, upon conviction, shall be sentenced to pay a fine
21 not exceeding $1,000 for each day of failure to comply.
22 (c) Authority to prosecute.--Prosecutions for violations
23 referred to in this section may be instituted by the
24 commissioner.
25 SUBCHAPTER F
26 PUBLIC ADJUSTERS AND SOLICITORS
27 Sec.
28 1171. Definitions.
29 1172. Licensure.
30 1173. Fees.
19850H1962B2642 - 122 -
1 1174. Bonds.
2 1175. Contracts.
3 1176. Penalties.
4 1177. Violations.
5 § 1171. Definitions.
6 The following words and phrases when used in this subchapter
7 shall have the meanings given to them in this section unless the
8 context clearly indicates otherwise:
9 "Public adjuster." Any person, advertising, soliciting
10 business or holding himself out to the public as an adjuster of
11 claims for losses or damages arising out of policies of
12 insurance, surety or indemnity upon property, persons or
13 insurable business interests in this Commonwealth, and receiving
14 any compensation or reward for the giving of advice or
15 assistance to the insured in the adjustment of claims for such
16 losses, or who for compensation or reward, whether by way of
17 salary or commission or otherwise, solicits business,
18 investigates or adjusts losses or advises the insured with
19 reference to claims for losses on behalf of any other person
20 engaged in the business of adjusting losses. The term does not
21 include an agent or employee of an insurance entity through whom
22 a policy of insurance was written, in adjusting loss or damage
23 under such policy, nor does it include a broker or agent acting
24 as an adjuster if the services of the agent or broker in the
25 adjustment are without compensation.
26 "Public adjuster solicitor." Any person who solicits for a
27 fee or in any manner aids in securing for a public adjuster a
28 contract for the adjustment of a loss.
29 "Repairs." Does not include temporary or emergency repairs
30 made for the purpose of protecting the insured property or to
19850H1962B2642 - 123 -
1 comply with policy terms and conditions.
2 § 1172. Licensure.
3 (a) Requirement of license.--A person shall not act as a
4 public adjuster or a public adjuster solicitor without first
5 procuring from the commissioner a license as a public adjuster
6 or public adjuster solicitor, respectively.
7 (b) Power to issue licenses.--The commissioner may issue a
8 license as a public adjuster or public adjuster solicitor to any
9 individual of at least 18 years of age and to any corporation,
10 partnership or association which maintains a bona fide office in
11 this Commonwealth, readily accessible to the general public.
12 (c) Limitations.--A license shall not be granted to any
13 corporation unless by its charter it is authorized to engage in
14 the business of insurance claim adjusting and unless individual
15 licenses are also secured for each active officer of the
16 corporation. A license shall not be granted to a partnership or
17 association unless individual licenses are also secured for each
18 active member of the partnership or association.
19 (d) Application for license.--Before the license is granted,
20 the applicant shall first complete a verified application in a
21 form determined by the commissioner. Any applicant who has held
22 such a license for a period of at least two years prior to
23 December 20, 1983, shall be entitled upon proper application to
24 receive a license without the necessity of submitting to an
25 examination.
26 (e) Approval of license.--When the commissioner is satisfied
27 that the applicant is trustworthy and competent to transact
28 business as a public adjuster or public adjuster solicitor,
29 respectively, he shall issue a license.
30 (f) Nonresident public adjusters and public adjuster
19850H1962B2642 - 124 -
1 solicitors.--The commissioner may issue a license as public
2 adjuster or public adjuster solicitor to a person not a resident
3 of this Commonwealth, upon compliance with the applicable
4 provisions of this subchapter, if the state or the province of
5 the Dominion of Canada of his residence accords the same
6 privilege to a resident of this Commonwealth. The provisions of
7 this subsection relating to noneligibility for licensure do not
8 apply to any nonresident public adjusters and public adjuster
9 solicitors who did business in this Commonwealth as licensed
10 public adjusters or public adjuster solicitors prior to December
11 20, 1983. The commissioner may enter into reciprocal agreements
12 with the appropriate official of the other state or province
13 waiving the written examination of any applicant resident in the
14 other state if:
15 (1) a written examination is required of applicants for
16 an insurance public adjuster or public adjuster solicitor
17 license in the other state or province;
18 (2) the appropriate official of the other state or
19 province certifies that the applicant holds a currently valid
20 license as a public adjuster or public adjuster solicitor in
21 the other state or province and either passed the written
22 examination or was the holder of an insurance agent's license
23 prior to the time a written examination was required; and
24 (3) in the other state or province a resident of this
25 Commonwealth may obtain a public adjuster or public adjuster
26 solicitor license upon the foregoing conditions and without
27 discrimination as to fees or otherwise in favor of the
28 residents of the other state or province.
29 (g) Persons ineligible for license.--A license as a public
30 adjuster or public adjuster solicitor shall not be issued to any
19850H1962B2642 - 125 -
1 person engaged or interested in, or receiving any profit from,
2 nor shall the holder of a license engage or be interested in, or
3 receive any profit from, any salvage or similar business.
4 § 1173. Fees.
5 (a) Public adjuster's license.--The applicant shall pay the
6 fee to the commissioner for a public adjuster's license at the
7 time application is made and annually thereafter for renewal. If
8 the applicant is a corporation, partnership or association, the
9 fee shall be paid for each individual specified in the license.
10 (b) Public adjuster solicitor's license.--The applicant
11 shall pay the fee to the commissioner for a public adjuster
12 solicitor's license at the time application is made and annually
13 thereafter for renewal. If the applicant is a corporation,
14 partnership or association, the fee shall be paid for each
15 individual specified in the license.
16 § 1174. Bonds.
17 (a) Public adjuster's bond.--Each person receiving a public
18 adjuster's license shall before transacting any business
19 thereunder execute and deliver to the commissioner a bond in the
20 minimum penal sum of $40,000 with such sureties as the
21 commissioner approves.
22 (b) Public adjuster solicitor's bond.--Each person receiving
23 a public adjuster solicitor's license shall before transacting
24 any business thereunder execute and deliver to the commissioner
25 a bond in the minimum penal sum of $8,000 with such sureties as
26 the commissioner approves.
27 (c) Condition of bond.--The bond of the public adjuster and
28 the public adjuster solicitor shall be conditioned that the
29 public adjuster or public adjuster solicitor will faithfully
30 comply with all the requirements of this subchapter and shall
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1 not embezzle, take, secrete or otherwise dispose of or
2 fraudulently withhold, appropriate, lend, invest or otherwise
3 use or apply any money or substitutes for money or any salvage,
4 goods or property received by him as a public adjuster or public
5 adjuster solicitor or employee of a public adjuster, contrary to
6 the instructions or without the consent of the insured or his
7 legal representative.
8 (d) Intervention in action by Commonwealth.--Any person,
9 firm or corporation who has entered into a contract with a
10 public adjuster, as provided in section 1175 (relating to
11 contracts) and who suffers loss by reason of the failure of the
12 public adjuster to comply with this subchapter or to faithfully
13 perform his duties may intervene and be made a party to any
14 action instituted by the Commonwealth on the bond of the public
15 adjuster, but his claims shall be to the priority of the claim
16 and judgment of the Commonwealth. If the amount of the liability
17 of the surety on the bond is sufficient to pay the full amount
18 due the Commonwealth, the remainder shall be distributed pro
19 rata among the intervenors.
20 (e) Private action.--If no action is brought by the
21 Commonwealth, upon application therefor and furnishing affidavit
22 to the commissioner that loss has been suffered by reason of
23 failure of the public adjuster to comply with this subchapter or
24 faithfully perform his duties, the insured shall be furnished
25 with a certified copy of the bond, upon which he shall have a
26 right of action and may bring action in the name of the
27 Commonwealth for his use and benefit against the public adjuster
28 and his sureties. An action by any insureds on the bond of the
29 public adjuster shall be commenced within one year after the
30 performance and final settlement of the contract. Where an
19850H1962B2642 - 127 -
1 action is so instituted by an insured, no other action shall be
2 brought by any other claimant, but the claimant may file his
3 claim in the action first brought and be made party thereto
4 within one year from the completion of the work under the
5 contract. If two or more actions are brought on the same day,
6 the action in which the largest claim is demanded shall be
7 regarded as the first action. Any creditor who has brought an
8 action within one year but after action brought by another
9 creditor, may intervene in the action first brought within the
10 year, notwithstanding the fact that the intervention in such
11 case is after the expiration of the year, but only within 30
12 days after the expiration of the year. If the recovery on the
13 bond is inadequate to pay the amounts found due to all of the
14 creditors, judgment shall be given to each creditor pro rata of
15 the amount of the recovery.
16 (f) Payment into court.--The surety on the bond may pay into
17 the court for distribution among the claimants and creditors,
18 the penalty named in the bond, less any amount which the surety
19 is or was required to pay to the Commonwealth by reason of the
20 execution of the bond. Upon so doing, the surety will be
21 relieved from further liability.
22 (g) Notice.--In all actions instituted under this
23 subchapter, such personal notice of the pendency of the action,
24 informing them of their right to intervene, as the court may
25 order, shall be given to all known creditors. Notice shall be
26 given by publication in newspapers of general circulation
27 published in the municipality where the contract was performed
28 once a week for at least three successive weeks; however, if the
29 action is begun within three weeks of the end of the year within
30 which action may be brought, notice by publication shall be only
19850H1962B2642 - 128 -
1 for the period intervening between the time of instituting the
2 action and the end of the year.
3 § 1175. Contracts.
4 (a) Form of contract.--A public adjuster shall not, directly
5 or indirectly, act in this Commonwealth as a public adjuster
6 without having entered into a written contract on a form
7 approved by the commissioner and executed in duplicate by the
8 public adjuster and the insured or a duly authorized
9 representative. One copy of this contract shall be kept on file
10 by the public adjuster and available at all times for inspection
11 without notice by the commissioner. A public adjuster solicitor
12 shall not use any form of contract other than that approved for
13 the public adjuster for whom he is soliciting, nor shall he make
14 any contracts or agreements for himself or for the public
15 adjuster other than those specified in the approved contract.
16 (b) Solicitation.--A public adjuster or public adjuster
17 solicitor shall not solicit a client for employment within 24
18 hours of a fire or other catastrophe or occurrence which is the
19 basis of the solicitation. With respect to a fire, the 24-hour
20 period shall begin at such time as the fire department in charge
21 determines that the fire is extinguished.
22 (c) Rescission.--Any contract with a public adjuster may be
23 rescinded by any person signing the contract. Such action must
24 be taken within four calendar days after signature.
25 (d) Limitations on authority.--A public adjuster or public
26 adjuster solicitor shall not adjust or solicit a contract for
27 the adjustment of any claim for losses or damages on behalf of
28 any person except claims by an insured against his own insurance
29 carrier. A public adjuster or public adjuster solicitor shall
30 not act in any manner in relation to claims for personal injury
19850H1962B2642 - 129 -
1 or automobile property damage. A public adjuster or public
2 adjuster solicitor shall not, directly or indirectly, through or
3 with any person in which it has an indirect or beneficial
4 interest, enter into any contract with any insured for the
5 repair, replacement, restoration, renovation or demolition of
6 damaged real or personal property at any time prior to the date
7 a verdict or award is entered or payment is received from the
8 insurance carrier, whichever occurs first.
9 § 1176. Penalties.
10 (a) Grounds.--The following acts shall be grounds for a fine
11 or suspension or revocation of a public adjuster's or public
12 adjuster solicitor's license:
13 (1) Material misrepresentation of the terms and effect
14 of any insurance contract.
15 (2) Engaging in, or attempting to engage in, any
16 fraudulent transaction with respect to a claim or loss that
17 licensee is adjusting.
18 (3) Misrepresentation of the services offered or the
19 fees or commission to be charged.
20 (4) Conviction by any court of or a plea of nolo
21 contendere to a felony under the laws of this Commonwealth,
22 any other state, the United States or any foreign country.
23 (5) Misappropriation, conversion to his own use or
24 improper withholding of moneys held on behalf of another
25 party to the contract.
26 (6) Paying or causing to be paid any commission or any
27 other compensation or thing of value to any agent, broker,
28 attorney at law, partner, employee or any other person, hired
29 by or employed by or with any insured named in any policy of
30 insurance as an inducement or solicitation to influence the
19850H1962B2642 - 130 -
1 contracting of services for the services of public adjuster
2 or public adjuster solicitor with any insured. A public
3 adjuster may utilize the services of any person authorized by
4 the insurer to assist in connection with an insurance claim
5 if those services do not conflict with the services required
6 to be rendered by a public adjuster.
7 (7) Receiving, directly or indirectly, any compensation,
8 commission or thing of value or profit from any person
9 engaged or interested in the business of salvage, repair,
10 replacement, restoration, renovation or demolition of damaged
11 real or personal property, unless disclosed to the insured
12 and agreed to in the contract.
13 (8) Removal of a public adjuster's or a public adjuster
14 solicitor's office, accounts or records from this
15 Commonwealth.
16 (9) Closure of a licensee's office for a period in
17 excess of 30 days, unless granted permission to do so by the
18 commissioner.
19 (10) Violation of any provision of this subchapter or
20 any rule or regulation promulgated thereunder.
21 (11) Making a material misstatement in the application
22 for any license under this subchapter.
23 (12) Commission of fraudulent practices.
24 (13) Incompetency or untrustworthiness to transact the
25 business of a public adjuster.
26 (b) Civil penalty.--Regardless of whether or not the public
27 adjuster or public adjuster solicitor was licensed, the
28 commissioner may impose a civil penalty of not more than $1,000
29 for each violation of this subchapter.
30 (c) Notice and hearing.--The commissioner shall hold a
19850H1962B2642 - 131 -
1 hearing before taking any action under this section. He shall
2 give written notice of the hearing to the person accused of
3 violating the law, stating specifically the nature of the
4 alleged violation and fixing a time and place, at least ten days
5 thereafter, when the hearing shall be held.
6 (d) Responsibility of adjusters and solicitors.--Any public
7 adjuster or public adjuster solicitor employing or using the
8 services of any person to solicit business shall be held
9 responsible for the conduct of that person in connection with
10 business dealings, including, but not limited to, making certain
11 that he has a valid license as a public adjuster or public
12 adjuster solicitor.
13 § 1177. Violations.
14 Any person violating any of the provisions of this subchapter
15 commits a misdemeanor of the third degree and, upon conviction,
16 shall be sentenced to pay a fine of not less than $500 nor more
17 than $1,000 for each violation. Prosecutions for violations
18 under this section may be instituted by the commissioner or an
19 authorized representative.
20 SUBCHAPTER G
21 PUBLIC REMEDIES FOR UNLICENSED ACTIVITY
22 Sec.
23 1191. Injunction or other process.
24 § 1191. Injunction or other process.
25 (a) Authority to file.--The commissioner, upon advice of the
26 Attorney General, may maintain an action in the name of the
27 Commonwealth for an injunction or other process against any
28 person to restrain and prevent him from transacting business as
29 an agent or solicitor of any insurance entity or as an insurance
30 broker, manager or exclusive general agent of a domestic
19850H1962B2642 - 132 -
1 insurance entity, or as a public adjuster or public adjuster
2 solicitor without a license, in violation of this chapter.
3 (b) Bonds and costs.--A bond shall not be required of and
4 costs shall not be taxed against the commissioner on account of
5 any such action.
6 (c) Construction of section.--An action brought under this
7 section does not prevent the prosecution or institution of any
8 civil or criminal action otherwise provided by law for violation
9 of any licensing statute or departmental regulation promulgated
10 thereunder.
11 CHAPTER 13
12 UNLICENSED INSURERS
13 Sec.
14 1301. Purpose of chapter.
15 1302. Definitions.
16 1303. Aiding unlicensed insurers.
17 1304. Surplus lines insurance.
18 1305. Exclusions.
19 1306. Declarations.
20 1307. Eligible surplus lines insurers.
21 1308. Licensure of surplus lines agents.
22 1309. Bond of surplus lines agents.
23 1310. Penalties.
24 1311. Surplus lines tax.
25 1312. Information required on contract.
26 1313. Service of process.
27 1314. Rights of insured.
28 1315. Penalties.
29 § 1301. Purpose of chapter.
30 The purpose of this chapter is to:
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1 (1) Promote the public welfare and to protect the public
2 interest by regulating, taxing, supervising and controlling
3 the placing of insurance on risks located in this
4 Commonwealth with insurers not licensed to transact insurance
5 business in this Commonwealth.
6 (2) Protect citizens of this Commonwealth purchasing
7 insurance from unlicensed insurers.
8 (3) Define and regulate the persons through whom
9 insurance may be placed.
10 (4) Protect licensed insurers from unregulated and
11 unfair competition from unlicensed insurers.
12 (5) Establish reasonable standards to be met by
13 unlicensed insurers.
14 § 1302. Definitions.
15 The following words and phrases when used in this chapter
16 shall have the meanings given to them in this section unless the
17 context clearly indicates otherwise:
18 "Eligible surplus lines insurer." An unlicensed entity which
19 has been so designated by the commissioner under this chapter.
20 "Insured." Any person who procures insurance on a subject of
21 insurance resident, located or to be performed in this
22 Commonwealth.
23 "Licensed insurer." An entity licensed and authorized by the
24 commissioner to transact any insurance business in this
25 Commonwealth.
26 "Producing broker." A person licensed as an insurance broker
27 under this title, who is acting as a representative of the
28 insured or prospective insured in a transaction involving
29 placement of insurance coverage with an unlicensed insurer and
30 who may receive a commission therefor.
19850H1962B2642 - 134 -
1 "Surplus lines activity." Any business activity incident to
2 the placement of insurance with an unlicensed insurer, except
3 the performance of routine accounting or clerical tasks.
4 "Surplus lines agent." A person who is licensed as such by
5 the commissioner to effect placement of insurance coverage with
6 an unlicensed insurer and who may receive a commission therefor.
7 "Unlicensed insurer." An entity which is not a licensed
8 insurer.
9 § 1303. Aiding unlicensed insurers.
10 (a) General rule.--A person in this Commonwealth shall not
11 directly or indirectly act as agent for, or otherwise represent
12 or aid on behalf of another, any insurer not licensed to
13 transact insurance in this Commonwealth in the solicitation,
14 negotiation, procurement, effectuation or renewal of insurance,
15 forwarding of applications, delivery of policies or contracts or
16 inspection of risks, fixing of rates, investigation or
17 adjustment of claims or losses, collection or forwarding of
18 premiums, or in any other manner represent or assist the insurer
19 in the transaction of insurance.
20 (b) Exceptions.--Subsection (a) does not apply to:
21 (1) Surplus lines insurance effected and written under
22 this chapter.
23 (2) Transactions subsequent to issuance of a policy not
24 covering domestic risks at time of issuance and lawfully
25 solicited, written or delivered outside this Commonwealth.
26 § 1304. Surplus lines insurance.
27 (a) Requirements for placement.--Insurance shall not be
28 placed with an unlicensed insurer by a surplus lines agent
29 unless the insurance meets each of the following requirements:
30 (1) The full amount of insurance required is not
19850H1962B2642 - 135 -
1 procurable, after the producing broker has made a diligent
2 effort to do so, from licensed insurers authorized to
3 transact the class of insurance involved and which actually
4 do accept in the usual course of business insurance on risks
5 of the same class as the particular risk proposed.
6 (2) The surplus lines agent handling the transaction is
7 not aware of any licensed insurer satisfactory to the insured
8 from which the desired coverage may be obtained.
9 (3) The premium rate at which insurance is placed in an
10 unlicensed insurer is not lower than the lowest published
11 rate which has been approved by the commissioner for use by
12 any licensed insurer.
13 (4) The policy or contract form used by the insurer does
14 not differ materially from policies or contracts customarily
15 used by licensed insurers for the class of insurance for the
16 class of insurance involved. However, coverage may be placed
17 with an unlicensed insurer using a unique form of policy
18 designed for the particular subject of insurance if a copy of
19 the form is first filed with the commissioner by the surplus
20 lines agent desiring to use it. The form shall be deemed
21 approved by the commissioner unless within ten days after
22 receipt the commissioner finds that the use of the form will
23 be contrary to law or public policy.
24 (b) Diligent effort.--The requirements for the diligent
25 effort to procure insurance from licensed insurers under
26 subsection (a)(1) shall be as follows:
27 (1) At least three licensed insurers, all of which
28 actually issue insurance on the class in question in their
29 normal course of business, refuse to insure the particular
30 risk or refuse to increase the amount of insurance on the
19850H1962B2642 - 136 -
1 risk.
2 (2) This refusal is made by a full-time employee of the
3 insurer in question, or a full-time employee of a firm acting
4 in the capacity of underwriting manager for the insurer;
5 refused by the producing broker in his capacity as an agent
6 of an insurer, or by any other "local agent," as the term is
7 generally used in the insurance business, shall not be deemed
8 a refusal for the purpose of this section.
9 (c) Renewals.--Any insurance which has been placed
10 continuously with an unlicensed insurer for a period of not less
11 than three consecutive years immediately preceding the current
12 placement may be placed with the unlicensed insurer. In this
13 case, neither the producing broker nor the surplus lines agent
14 shall be required to execute the declaration required by section
15 1306(a) (relating to declarations).
16 § 1305. Exclusions.
17 The provisions of this chapter do not apply to the following:
18 (1) Life insurance and annuities.
19 (2) Reinsurance.
20 (3) Insurance on the property and operation of railroads
21 or aircraft engaged in interstate or foreign commerce,
22 insurance of vessels, crafts or hulls, cargoes, marine
23 builders' risks, marine protection and indemnity, lessees and
24 charterers' liability or other risks, including strikes and
25 war risks commonly insured under ocean or wet marine forms of
26 policies.
27 (4) Insurance on subjects located, resident or to be
28 performed wholly outside this Commonwealth.
29 (5) Title insurance.
30 § 1306. Declarations.
19850H1962B2642 - 137 -
1 (a) Initial placements.--In the case of each placement of
2 insurance with an unlicensed insurer under section 1304(a) or
3 (b) (relating to surplus lines insurance), both the producing
4 broker and surplus lines agent shall execute written
5 declarations in a form prescribed by the commissioner, the
6 producing broker as to his having made a diligent effort to
7 procure the desired coverage from licensed insurers, and the
8 surplus lines agent as to his lack of knowledge as to how the
9 coverage can be obtained from licensed insurers. If the
10 producing broker and surplus lines agent are one and the same
11 entity, he shall execute both declarations. Within 21 days after
12 insurance which has been placed with an unlicensed insurer
13 becomes effective, the surplus lines agent shall file with the
14 commissioner his own written declaration and the written
15 declaration of the producing broker, as set forth in this
16 subsection, and shall at that time advise the commissioner of
17 the identity of any unlicensed insurer from which he has
18 obtained the insurance and other information in such form as the
19 commissioner shall prescribe. The surplus lines agent shall
20 maintain in his office written records showing the exact amount
21 of insurance placed, the name of the insured, the subject of the
22 insurance, a description of the coverage, the gross premium, the
23 name of the insurer and the number, effective date and term of
24 the policy, cover note or other instrument of insurance.
25 (b) Continuation of placement.--In the case of each
26 placement of insurance with an unlicensed insurer under the
27 provisions of section 1304(c) within 21 days after insurance
28 which has been placed with an unlicensed insurer becomes
29 effective, the surplus lines agent shall file with the
30 commissioner his written declaration setting forth the identity
19850H1962B2642 - 138 -
1 of each unlicensed insurer with which the insurance has been
2 placed for the three years immediately preceding the current
3 placement, the identity of each unlicensed insurer with which
4 the current placement is made and the fact that the current
5 placement is the renewal or replacement of prior existing
6 coverage on the same subject of insurance.
7 (c) Perjury.--Declarations wherever required by this section
8 shall be made subject to the penalties provided for perjury and
9 are to be construed in the same way as affidavits.
10 (d) Availability of records.--Records required under this
11 section shall be made available at any time during normal
12 business hours to the commissioner and shall be kept in the
13 office of the surplus lines agent for not less than three years
14 after the expiration or cancellation of the insurance.
15 (e) Notice of change of insurer.--If there is any change in
16 the insurer or in the distribution of the risk among two or more
17 insurers during the term of an insurance policy or contract, the
18 surplus lines agent shall notify the insured and the
19 commissioner to that effect within ten days of his knowledge
20 thereof.
21 § 1307. Eligible surplus lines insurers.
22 (a) Prohibition on placement.--A surplus lines agent shall
23 not place any insurance with any unlicensed insurer who is not
24 then an eligible surplus lines insurer.
25 (b) Determination of eligibility.--An unlicensed insurer
26 shall not be an eligible surplus lines insurer unless declared
27 eligible by the commissioner in accordance with the following
28 conditions:
29 (1) A licensed surplus lines agent shall request the
30 commissioner, in writing, to declare the particular
19850H1962B2642 - 139 -
1 unlicensed insurer eligible.
2 (2) The insurer shall be currently a licensed insurer in
3 the state or country of its domicile as to the kind or kinds
4 of insurance which it proposes to provide and shall have been
5 so currently licensed for a period of time sufficient for the
6 commissioner to ascertain that the other requirements of this
7 chapter have been met, including operational procedures and
8 claims practices.
9 (3) The surplus lines agent requesting such declaration
10 shall furnish the commissioner with duly authenticated copies
11 of the insurer's current annual financial statement, one in
12 the language and currency of the country of its domicile and
13 the other in the English language and United States currency
14 at the current exchange rate, and such additional information
15 relative to the insurer as the commissioner may require.
16 (4) The insurer shall have a surplus as to policyholders
17 of not less than the amount required of a like foreign
18 insurer licensed in this Commonwealth and, if an alien
19 insurer, shall have and maintain, in a bank or trust company
20 which is a member of the United States Federal Reserve
21 System, a trust fund established under terms reasonably
22 adequate for the protection of all of its policyholders in
23 the United States in an amount of not less than $400,000. In
24 the case of a group of individual unincorporated insurers,
25 the trust fund shall be not less than $50,000,000. The
26 commissioner may require larger trust funds than those
27 required under this paragraph if the volume of business being
28 transacted or proposed to be transacted warrants larger
29 amounts. To the extent of these minimum amounts, the trust
30 funds shall consist of United States currency, public
19850H1962B2642 - 140 -
1 obligations of the United States or a political subdivision
2 thereof, or other investments of the same general character
3 and quality as are required for like funds of the same class
4 of insurers licensed in this Commonwealth.
5 (5) The insurer shall be of good reputation as to the
6 providing of service to its policyholders and the payment of
7 losses and claims.
8 (6) An insurer shall not be eligible if its management
9 is considered by the commissioner to be incompetent,
10 untrustworthy or lacking in sufficient managerial experience,
11 or if the commissioner has reason to believe the insurer is
12 affiliated directly or indirectly through ownership, control,
13 reinsurance transactions or other insurance or business
14 relationships, with any entity whose business operations may
15 be or have been detrimental to the interests of
16 policyholders, stockholders, investors, creditors or the
17 public.
18 (c) List of eligible insurers.--The commissioner shall from
19 time to time publish a list of all currently eligible surplus
20 lines insurers and shall mail a copy thereof to each licensed
21 surplus lines agent at his last office of record with the
22 commissioner.
23 (d) Determination of ineligibility.--An eligible surplus
24 lines insurer shall furnish at least annually to the
25 commissioner the information required by subsection (b)(3). If
26 the commissioner has reason to believe that any unlicensed
27 insurer then on the list of eligible surplus lines insurers is
28 impaired financially or no longer meets the requirements for
29 eligibility, he shall declare the insurer ineligible as a
30 surplus lines insurer. If, after a hearing of which reasonable
19850H1962B2642 - 141 -
1 notice is given to all licensed surplus lines agents, the
2 commissioner determines that an insurer currently eligible as a
3 surplus lines insurer has willfully violated the law or has
4 failed to make reasonably prompt settlement of just claims for
5 losses or return premiums, he may declare the insurer no longer
6 an eligible surplus lines insurer. The commissioner shall
7 promptly mail notice of all such declarations to each surplus
8 lines agent at his last address of record with the commissioner.
9 (e) Significance of eligibility.--This section does not
10 impose on the commissioner any duty or responsibility to
11 determine the actual financial condition or claims practices of
12 any unlicensed insurer. The status of eligible surplus lines
13 insurer, if granted by the commissioner, shall mean only that
14 the insurer appears to be sound financially and to have
15 satisfactory claims practices and that the commissioner has no
16 credible evidence to the contrary.
17 § 1308. Licensure of surplus lines agents.
18 (a) Individuals.--Any individual licensed insurance broker
19 who is a resident of this Commonwealth and who is found by the
20 commissioner to have had sufficient experience in the insurance
21 business to be competent for the purpose, may be licensed as a
22 surplus lines agent upon passing a written examination on his
23 knowledge of this chapter and his general knowledge of surplus
24 lines activity, the content of such examination to be prescribed
25 by the commissioner.
26 (b) Partnerships and corporations.--Any partnership or
27 corporation licensed insurance broker resident of this
28 Commonwealth may become licensed as a surplus lines agent if all
29 members of the partnership or all officers of the corporation,
30 as the case may be, who are actively engaged in the surplus
19850H1962B2642 - 142 -
1 lines activity of the partnership or corporation possess the
2 requisite experience and pass the written examination described
3 in subsection (a). The commissioner shall issue a certificate of
4 eligibility to all such partners or officers who so qualify to
5 handle surplus lines activity. Partners or officers not holding
6 the certificate of eligibility shall not engage in any phase of
7 the partnership's or corporation's surplus lines activity.
8 (c) Exemption from examination.--Any person who held a valid
9 excess insurance broker's license on March 1, 1966, shall be
10 deemed qualified for a license as a surplus lines agent without
11 the necessity of passing an examination. Partners of
12 partnerships and officers of corporations who were certified to
13 the commissioner as having been actively engaged in the surplus
14 lines activity of the partnership or corporation on March 1,
15 1966, shall be considered qualified for a certificate of
16 eligibility without the necessity of passing an examination.
17 (d) Forms.--Initial and renewal applications for the
18 licenses and certificates shall be made to the commissioner on
19 forms prescribed and furnished by him.
20 (e) Renewal.--The licenses and certificates shall be issued
21 for a term of 12 months and shall be renewable upon written
22 request therefor filed with the commissioner and accompanied by
23 payment of the license fee prior to expiration.
24 (f) Payment of fees.--The fees required by the commissioner
25 to administer this section, including the surplus lines agent's
26 annual license fee, the fee for the annual certificate of
27 eligibility and the examination fee, shall be paid in advance.
28 § 1309. Bond of surplus lines agents.
29 Prior to the issuance of a license, the applicant shall
30 furnish the commissioner and shall keep in force for as long as
19850H1962B2642 - 143 -
1 any such license remains in effect a bond in favor of the
2 Commonwealth in the amount of not less than $25,000 aggregate
3 liability, such bond to be issued by a licensed and authorized
4 corporate surety or sureties approved by the commissioner. The
5 bond shall be conditioned that the surplus lines agent will
6 comply with all the requirements of section 1311 (relating to
7 surplus lines tax). The commissioner may require a bond in a
8 larger amount if the volume of business transacted or to be
9 transacted by a particular surplus lines agent warrants a larger
10 amount. The aggregate liability of the surety for any and all
11 claims on any such bond shall not exceed the amount thereof. The
12 bond shall not be terminated except upon not less than 30 days'
13 prior written notice thereof given to the licensee, the
14 commissioner and the Department of Revenue.
15 § 1310. Penalties.
16 (a) Surplus lines agents.--The commissioner may suspend,
17 revoke or refuse to renew the license of a surplus lines agent
18 or impose a fine of not more than $1000 for each violation of
19 this chapter upon any one or more of the following grounds:
20 (1) Removal of the licensee's office or of the accounts
21 and records of his surplus lines activity from this
22 Commonwealth.
23 (2) Closure of the licensee's office for a period in
24 excess of 30 consecutive days, unless granted permission by
25 the commissioner to close the office for a longer period.
26 (3) Failure to file reports when due or to remit taxes
27 under section 1311 (relating to surplus lines tax).
28 (4) Failure to maintain the bond under section 1309
29 (relating to bond of surplus lines agents).
30 (5) Failure to remit premiums due insurers or return
19850H1962B2642 - 144 -
1 premiums due insureds in the normal course of business and
2 within reasonable time limits.
3 (6) Suspension, revocation or refusal to renew any other
4 license or certificate issued by the commissioner to the
5 licensee.
6 (7) Violation of any provision of this chapter.
7 (b) Other agents.--When any licensed insurance agent, broker
8 or licensed insurer violates this chapter, the commissioner may
9 suspend, revoke or refuse to renew the license of the agent or
10 broker or impose a fine of not more than $1000 upon the agent,
11 broker or licensed insurer for each violation of this chapter.
12 (c) Notice and hearing.--The commissioner shall hold a
13 hearing before taking any action under subsections (a) and (b).
14 He shall give written notice of the hearing to the person
15 charged with the violation, stating specifically the nature of
16 the alleged violation and fixing a time and place at least ten
17 days thereafter when the hearing shall be held.
18 § 1311. Surplus lines tax.
19 (a) Imposition.--A tax of 3% shall be levied on all premiums
20 charged for insurance which is placed with an unlicensed insurer
21 under this chapter, based on the gross premiums charged less any
22 return premiums. This tax shall be in addition to the full
23 amount of the gross premium charged by the insurer for the
24 insurance, except that the tax on any unearned portion of the
25 premium shall be returned to the insured.
26 (b) Payment.--A surplus lines agent or producing broker
27 shall not directly or indirectly pay the tax or any portion
28 thereof, either as an inducement to the insured to purchase the
29 insurance or for any other reason. In the case where a
30 transaction is handled by a licensed surplus lines agent for
19850H1962B2642 - 145 -
1 another licensed surplus lines agent, the surplus lines agent
2 dealing directly with the insurer is responsible to the
3 Commonwealth for reporting the transaction and paying the tax.
4 (c) Return by agent.--The surplus lines agent shall collect
5 from the insured or the producing broker the amount of the tax
6 at the time of delivery of the initial policy, cover note or
7 other instrument of insurance or at such time thereafter as is
8 reasonably consistent with normal credit terms customary in the
9 business. Each surplus lines agent shall, on or before January
10 31 of each year, file with the Department of Revenue on forms
11 prescribed and furnished by the Department of Revenue a report
12 of all transactions involving the placement of insurance with
13 unlicensed insurers during the previous calendar year. This
14 report shall set forth the name of the insured, the
15 identification of the insurer, the type of insurance, the gross
16 premiums charged less any return premiums allowed and the tax
17 due as provided in this section. The remittance for the taxes
18 due shall accompany this report. A copy of the report shall be
19 filed with the commissioner by the surplus lines agent.
20 (d) Return by insured.--The tax provided by subsection (a)
21 shall be imposed upon an insured who procures insurance on a
22 subject of insurance which is resident, located or to be
23 performed in this Commonwealth from an unlicensed insurer or
24 continues or renews such insurance, other than insurance
25 procured through a surplus lines agent in accordance with this
26 chapter. The insured shall, within 30 days after the date when
27 the insurance was procured, continued or renewed, report the
28 transaction on forms prescribed by the Department of Revenue.
29 This report shall set forth the information required of surplus
30 lines agents as required in subsection (c). The tax shall be
19850H1962B2642 - 146 -
1 paid on the date the report is due under this section. A copy of
2 the report shall be filed with the commissioner by the insured.
3 (e) Risks related in other states.--In the case where a
4 placement of insurance, either by a surplus lines agent or by
5 the insured himself, involves subjects of insurance resident,
6 located or to be performed in one or more other states the
7 premium taxes shall be levied only on that portion of the
8 premium reasonably ascribable to that portion of the risk
9 situated in this Commonwealth.
10 (f) Applicability of Fiscal Code.--The settlement and
11 resettlement of taxes under this section, including the granting
12 of extensions of time to file reports and the rights of the
13 taxpayers to present and prosecute a petition for resettlement,
14 a petition for review or an appeal to court or to file a
15 petition for refund and the imposition of interest and
16 penalties, shall be governed by the act of April 9, 1929
17 (P.L.343, No.176), known as The Fiscal Code, as approved in the
18 case of capital stock and franchise taxes.
19 § 1312. Information required on contract.
20 Every policy, cover note or other instrument of insurance
21 delivered to the insured and placed with an unlicensed insurer
22 in accordance with this chapter shall have printed, typed or
23 stamped on it, in not less than ten-point print, the following
24 legend: "This insurance contract is issued by an insurer neither
25 licensed by nor under the jurisdiction of the Pennsylvania
26 Insurance Department and is written pursuant to the Pennsylvania
27 Surplus Lines Law. Placed by (name and office address of surplus
28 lines agent)." This legend shall not be concealed by a policy
29 label or sticker or in any other manner.
30 § 1313. Service of process.
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1 Every policy, cover note or other instrument of insurance
2 delivered to the insured and placed with an unlicensed insurer
3 under this chapter shall contain a clause or provision
4 appointing the commissioner as the true and lawful attorney of
5 each insurer in and for the Commonwealth, upon whom all lawful
6 process may be served in any action, suit or proceeding
7 instituted in this Commonwealth by or on behalf of an insured or
8 beneficiary against the insurer, arising out of the instrument
9 of insurance.
10 § 1314. Rights of insured.
11 This chapter does not prevent an insured from enforcing his
12 rights under the terms and conditions of a contract of insurance
13 entered into in violation of this chapter.
14 § 1315. Penalties.
15 Any person who in this Commonwealth violates any provision of
16 this chapter commits a misdemeanor of the third degree and, upon
17 conviction, shall be subject to a fine not in excess of $1,000.
18 CHAPTER 15
19 UNFAIR INSURANCE PRACTICES
20 Sec.
21 1501. Short title of chapter.
22 1502. Purpose of chapter.
23 1503. Definitions.
24 1504. Unfair practices.
25 1505. Immunity for statements or information.
26 1506. Powers of commissioner.
27 1507. Administrative action.
28 1508. Injunction.
29 1509. Civil penalties.
30 1510. Exclusions.
19850H1962B2642 - 148 -
1 § 1501. Short title of chapter.
2 This chapter shall be known and may be cited as the Unfair
3 Insurance Practices Act.
4 § 1502. Purpose of chapter.
5 The purpose of this chapter is to regulate trade practices in
6 the business of insurance in accordance with the intent of
7 Congress as expressed in the Federal act of March 9, 1945
8 (Public Law 79-15, 15 U.S.C. § 1011 et seq.) by defining or
9 providing for the determination of all practices in this
10 Commonwealth which constitute unfair methods of competition or
11 unfair or deceptive acts or practices and by prohibiting those
12 practices.
13 § 1503. Definitions.
14 The following words and phrases when used in this chapter
15 shall have the meanings given to them in this section unless the
16 context clearly indicates otherwise:
17 "Insurance policy" or "insurance contract." Any contract of
18 insurance, indemnity, health care, suretyship, title insurance
19 or annuity issued, proposed for issuance or intended for
20 issuance by any person.
21 "Person." Any partnership, reciprocal exchange, inter-
22 insurer, Lloyds insurer, fraternal benefit society as defined in
23 section 4302 (relating to definitions) or 4502 (relating to
24 definitions), beneficial society or association, health
25 maintenance organization as defined in section 7303 (relating to
26 definitions), hospital plan corporation as defined in section
27 7501 (relating to definitions) and professional health service
28 corporation as defined in section 7702 (relating to definitions)
29 and any other legal entity engaged in the business of insurance,
30 including agents, brokers and adjusters. For the purposes of
19850H1962B2642 - 149 -
1 this chapter, health care plans, fraternal benefit societies and
2 beneficial societies shall be deemed to be engaged in the
3 business of insurance.
4 "Renewal" or "to renew." The issuance and delivery by an
5 insurer of a policy superseding at the end of the policy period
6 a policy previously issued and delivered by the same insurer,
7 such renewal policy to provide types and limits of coverage at
8 least equal to those contained in the policy being superseded,
9 or the issuance and delivery of a certificate or notice
10 extending the term of a policy beyond its policy period or term
11 with types and limits of coverage at least equal to those
12 contained in the policy being extended. Any policy with a policy
13 period or term of less than 12 months or any period with no
14 fixed expiration date shall for the purpose of this chapter be
15 considered as if written for successive policy periods or terms
16 of 12 months.
17 § 1504. Unfair practices.
18 (a) Practices included.--A person shall not engage in this
19 Commonwealth in any trade practice which is defined or
20 determined to be an unfair method of competition or an unfair or
21 deceptive act or practice in the business of insurance,
22 including:
23 (1) Making, publishing, issuing or circulating any
24 estimate, illustration, circular, statement, sales
25 presentation or omission comparison which does any of the
26 following:
27 (i) Misrepresents the benefits, advantages,
28 conditions or terms of any insurance policy.
29 (ii) Misrepresents the premium overcharge commonly
30 called dividends or share of the surplus to be received
19850H1962B2642 - 150 -
1 on any insurance policy.
2 (iii) Misrepresents the facts regarding the
3 dividends or share of surplus previously paid on any
4 insurance policy.
5 (iv) Misleads or misrepresents as to the financial
6 condition of any person or as to the legal reserve system
7 upon which any insurer operates.
8 (v) Uses any name or title of any insurance policy
9 or class of insurance policies misrepresenting the true
10 nature thereof.
11 (vi) Misrepresents for the purpose of inducing or
12 tending to induce the lapse, forfeiture, exchange,
13 conversion or surrender of any insurance policy.
14 (vii) Misrepresent for the purpose of effecting a
15 pledge or assignment of or effecting a loan against any
16 insurance policy.
17 (viii) Misrepresents any insurance policy as being
18 shares of stock.
19 (2) Making, issuing, publishing or circulating in any
20 manner an advertisement, announcement or statement containing
21 any representation or statement with respect to the business
22 of insurance or with respect to any person in the conduct of
23 his insurance business which is untrue, deceptive or
24 misleading.
25 (3) Making, issuing, publishing or circulating any oral
26 or written statement which is false or maliciously critical
27 of or derogatory to the financial condition of any person and
28 which is calculated to injure the person.
29 (4) Entering into any agreement to commit, or by any
30 concerted action committing, any act of boycott, coercion or
19850H1962B2642 - 151 -
1 intimidation resulting in or tending to result in
2 unreasonable restraint of, or monopoly in, the business of
3 insurance.
4 (5) Knowingly filing with any supervisory or other
5 public official, or knowingly making, issuing, publishing or
6 circulating any false material statement of fact as to the
7 financial condition of a person, or knowingly making any
8 false entry of a material fact in any book, report or
9 statement of any person or knowingly omitting to make a true
10 entry of any material fact pertaining to the business of such
11 person in any book, report or statement of such person.
12 (6) Issuing or delivering or permitting agents, officers
13 or employees to issue or deliver agency company stock or
14 other capital stock, or benefit certificates or shares in any
15 corporation, or securities or any special or advisory board
16 contracts or other contracts of any kind promising returns
17 and profits as an inducement to insurance.
18 (7) Unfairly discriminating in any of the following
19 ways:
20 (i) Making or permitting any unfair discrimination
21 between individuals of the same class and equal
22 expectation of life in the rates charged for any contract
23 of life insurance or of life annuity or in the dividends
24 or other benefits payable thereon, or in any other of the
25 terms and conditions of such contract.
26 (ii) Making or permitting any unfair discrimination
27 between individuals of the same class and of essentially
28 the same hazard in the amount of premium, policy, fees or
29 rates charged for any policy or contract of insurance or
30 in the benefits payable thereunder, in any of the terms
19850H1962B2642 - 152 -
1 or conditions of the contract or in any other manner.
2 (iii) Making or permitting any unfair discrimination
3 between individuals of the same class and essentially the
4 same hazard with regard to underwriting standards and
5 practices or eligibility requirements by reason of race,
6 religion, nationality or ethnic group, age, sex, family
7 size, occupation, place of residence or marital status.
8 The terms "underwriting standards and practices" and
9 "eligibility rules" do not include the promulgation of
10 rates if made or promulgated under Chapter 19 (relating
11 to insurance rates).
12 (8) Except as otherwise provided by law, knowingly
13 permitting or offering to make or making any contract of
14 insurance or agreement as to such contract other than as
15 plainly expressed in the insurance contract issued thereon,
16 or paying or allowing or giving or offering to pay, allow or
17 give, as inducement to such insurance, any rebate of premiums
18 payable on the contract, or any special favor or advantage in
19 the dividends or other benefits thereon, or any valuable
20 consideration, inducement or anything of value which is not
21 specified in the contract.
22 (9) Canceling any policy of insurance covering owner-
23 occupied private residential properties or personal property
24 of individuals that has been in force for 60 days or more or
25 refusing to renew any policy unless:
26 (i) the policy was obtained through material
27 misrepresentation, fraudulent statements or omissions or
28 concealment of fact material to the acceptance of the
29 risk or to the hazard assumed by the company;
30 (ii) there has been a substantial change or increase
19850H1962B2642 - 153 -
1 in hazard in the risk assumed by the company subsequent
2 to the date the policy was issued;
3 (iii) there is a substantial increase in hazards
4 insured against by reason of willful or negligent acts or
5 omissions by the insured;
6 (iv) the insured has failed to pay any premium when
7 due whether the premium is payable directly to the
8 company or its agent or indirectly under any premium
9 finance plan or extension of credit; or
10 (v) the policy may be canceled on other grounds
11 under regulations promulgated by the commissioner.
12 (10) Any of the following acts in connection with the
13 compromise or settlement of claims by insured arising under
14 insurance policies, if committed or performed with such
15 frequency as to indicate a business practice:
16 (i) Misrepresenting pertinent facts or policy or
17 contract provisions relating to coverages at issue.
18 (ii) Failing to acknowledge and act promptly upon
19 written or oral communications with respect to the
20 claims.
21 (iii) Failing to adopt and implement reasonable
22 standards for the prompt investigation of the claims.
23 (iv) Refusing to pay the claims without conducting a
24 reasonable investigation based upon all available
25 information.
26 (v) Failing to affirm or deny coverage of the claims
27 within a reasonable time after proof of loss statements
28 have been completed and communicated to the company or
29 its representative.
30 (vi) Not attempting in good faith to effectuate
19850H1962B2642 - 154 -
1 prompt, fair and equitable settlements of the claims in
2 which the liability of the company under the policy has
3 become reasonably clear.
4 (vii) Compelling persons to institute litigation to
5 recover amounts due under an insurance policy by offering
6 substantially less than the amounts due and recovered in
7 actions brought by such persons.
8 (viii) Attempting to settle a claim for less than
9 the amount to which a reasonable man would have believed
10 he was entitled by reference to written or printed
11 advertising material accompanying or made part of an
12 application.
13 (ix) Attempting to settle or compromise claims on
14 the basis of an application which was altered without
15 notice to or knowledge or consent of the insured of the
16 alteration at the time the alteration was made.
17 (x) Making claims payments to insureds or
18 beneficiaries not accompanied by a statement setting
19 forth the coverage under which payments are being made.
20 (xi) Making known to insureds or claimants a policy
21 of appealing from arbitration awards in favor of insureds
22 or claimants to induce or compel them to accept
23 settlements or compromises less than the amount awarded
24 in arbitration.
25 (xii) Delaying the investigation or payment of
26 claims by requiring the insured, claimant or the
27 physician of either to submit a preliminary claim report
28 and then requiring the subsequent submission of formal
29 proof of loss forms, both of which submissions contain
30 substantially the same information.
19850H1962B2642 - 155 -
1 (xiii) Failing to promptly settle claims, where
2 liability has become reasonably clear, under one portion
3 of the insurance policy coverage in order to influence
4 settlements under other portions of the insurance policy
5 coverage or under other policies of insurance.
6 (xiv) Failing to promptly provide a reasonable
7 explanation of the basis in the insurance policy in
8 relation to the facts or applicable law for denial of a
9 claim or for the offer of a compromise settlement.
10 (xv) Refusing payment of a claim solely on the basis
11 of an insured's request to do so unless:
12 (A) the insured claims sovereign, diplomatic,
13 military service or other immunity from suit or
14 liability with respect to the claim;
15 (B) the insured is granted the right under the
16 policy of insurance to consent to settlement of
17 claims; or
18 (C) the refusal of payment is based upon the
19 insurer's independent evaluation of the insured's
20 liability based upon all available information.
21 (11) Failure of any person to maintain a complete record
22 of all the complaints which it has received during the
23 preceding four years. This record shall indicate the total
24 number of complaints, their classification by line of
25 insurance, the nature of each complaint, the disposition of
26 these complaints and the time it took to process each
27 complaint. For the purposes of this paragraph, the term
28 "complaint" means any written communication primarily
29 expressing a grievance.
30 (12) Making false or fraudulent statements or
19850H1962B2642 - 156 -
1 representations on or relative to an application for an
2 insurance policy for the purpose of obtaining a fee,
3 commission, money or other benefit from any insurer, agent,
4 broker or individual.
5 (13) Making, issuing, publishing or circulating an
6 advertisement, announcement or statement offering permanent
7 life insurance to persons 50 years of age or older without
8 accompanying disclosures of any applicable reduction in the
9 face amount payable and the period thereof.
10 (b) Exclusions.--
11 (1) Subsection (a)(7) or (8) does not include within the
12 definition of discrimination or rebates any of the following
13 practices:
14 (i) In the case of any contract of life insurance or
15 life annuity, paying bonuses to policyholders or
16 otherwise abating their premiums out of surplus
17 accumulated from nonparticipating insurance if any such
18 bonuses or abatement of premiums are fair and equitable
19 to policyholders and for the best interests of the
20 company and its policyholders.
21 (ii) In the case of life insurance policies issued
22 on the industrial or debit plan, making allowance to
23 policyholders who have continuously for a specified
24 period made premium payments directly to an office of the
25 insurer in an amount which fairly represents the saving
26 in collection expense.
27 (iii) Readjustment of the rate of premium for a
28 group insurance policy based on the loss or expense
29 experience thereunder, at the end of the first or any
30 subsequent policy year of insurance thereunder, which may
19850H1962B2642 - 157 -
1 be made retroactive only for such policy year.
2 (2) Subsection (a)(9) does not apply under any of the
3 following circumstances:
4 (i) If the insurer has manifested its willingness to
5 renew by issuing or offering to issue a renewal policy,
6 certificate or other evidence of renewal, including the
7 mailing of a renewal premium notice to the insured not
8 less than 30 days in advance of the expiration date of
9 the policy.
10 (ii) If the named insured has demonstrated by some
11 overt action to the insurer or its agent other than mere
12 nonpayment of premium that he wishes the policy to be
13 canceled or that he does not wish the policy to be
14 renewed.
15 (iii) To any policy of insurance which has been in
16 effect less than 60 days, including any notice of
17 termination period, unless it is a renewal policy. Any
18 declination of coverage within the 60-day period provided
19 in this clause shall, for purposes of review by the
20 commissioner, be deemed a refusal to write and shall not
21 be subject to the provisions of subsection (a)(9).
22 (c) Cancellation of homeowner policies.--In the case of any
23 policy of insurance covering owner-occupied private residential
24 properties or personal property of individuals, the insured may,
25 within ten days of the receipt by the insured of notice of
26 cancellation or notice of intention not to renew, request in
27 writing to the commissioner that he review that action of the
28 insurer. A cancellation or refusal to renew by any person shall
29 not be effective unless a written notice of the cancellation or
30 refusal to renew is received by the insured either at the
19850H1962B2642 - 158 -
1 address shown in the policy or at a forwarding address. The
2 notice shall:
3 (1) Be approved as to form by the commissioner prior to
4 use.
5 (2) State the date, not less than 30 days after the date
6 of delivery or mailing, on which such cancellation or refusal
7 to renew shall become effective.
8 (3) State the specific reason or reasons of the insurer
9 for cancellation or refusal to renew.
10 (4) Advise the insured of his right to file a written
11 request for review under this subsection, within ten days of
12 the receipt of the notice.
13 (5) Advise the insured of his possible eligibility for
14 insurance under Chapter 57 (relating to Pennsylvania Fair
15 Plan) or the Pennsylvania Assigned Risk Plan.
16 (6) Advise the insured in a form commonly understandable
17 of the provisions of paragraphs (2), (3) and (4) as they
18 limit permissible time and reasons for cancellation.
19 (7) Advise the insured of the procedures to be followed
20 in prosecuting an appeal.
21 § 1505. Immunity for statements or information.
22 There shall be no liability on the part of and no cause of
23 action of any nature shall arise against the commissioner, any
24 insurer, the authorized representatives, agents and employees of
25 either, or of any firm or person furnishing to the insurer
26 information as to reasons for cancellation or refusal to renew
27 for any statement made by them in complying with this chapter or
28 for providing information pertaining thereto.
29 § 1506. Powers of commissioner.
30 The commissioner may examine and investigate the affairs of
19850H1962B2642 - 159 -
1 every person engaged in the business of insurance in this
2 Commonwealth in order to determine whether such person has been
3 or is engaged in any unfair method of competition or in any
4 unfair or deceptive act or practice prohibited by this chapter.
5 § 1507. Administrative action.
6 (a) Notice and hearing.--If, as a result of investigation,
7 the commissioner has good cause to believe that any person is
8 violating any provision of this chapter, the commissioner shall
9 send notice of the violation by registered mail to the person
10 believed to be in violation. The notice shall state the time and
11 place for hearing which shall not be less than 30 days from the
12 date of the notice. At the hearing, the person shall have an
13 opportunity to be heard and to show cause why an order should
14 not be made by the commissioner to cease and desist from acts
15 constituting a violation of this chapter and why administrative
16 penalties should not be assessed.
17 (b) Intervention.--Upon good cause shown, the commissioner
18 shall permit any person to intervene, appear and be heard at the
19 hearing, either in person or by counsel.
20 (c) Procedure.--The commissioner may administer oaths,
21 examine and cross-examine witnesses, receive oral and
22 documentary evidence and subpoena witnesses, compel their
23 attendance and require the production of books, papers, records
24 or other documents which he deems relevant to the hearing. The
25 commissioner shall cause a record of all evidence and all
26 proceedings at the hearing to be kept.
27 (d) Order.--Following the hearing, the commissioner shall
28 issue a written order resolving the factual issues presented at
29 the hearing and stating what remedial action, if any, is
30 required of the person charged. The commissioner shall send a
19850H1962B2642 - 160 -
1 copy of the order to those persons participating in the hearing.
2 (e) Administrative penalty.--Upon a determination that this
3 chapter has been violated, the commissioner may issue an order
4 requiring the person to cease and desist from engaging in the
5 violation or, if such violation is a method of competition, act
6 or practice defined in section 1504 (relating to unfair
7 practices), the commissioner may suspend or revoke the person's
8 license.
9 § 1508. Injunction.
10 If the alleged violator fails to comply with an order of the
11 commissioner following hearing to cease and desist from unfair
12 methods of competition or an unfair or deceptive act or
13 practice, the commissioner may cause an action for injunction to
14 be filed in the Commonwealth Court or the court of the county in
15 which the violation occurred.
16 § 1509. Civil penalties.
17 In addition to any penalties imposed pursuant to this
18 chapter, the court may, in an action filed by the commissioner,
19 impose the following civil penalties:
20 (1) For each method of competition, act or practice
21 referred to in section 1504 (relating to unfair practices) or
22 otherwise in violation of this chapter which the person knew
23 or reasonably should have known was such a violation, a
24 penalty of not more than $5,000 for each violation but not to
25 exceed an aggregate penalty of $50,000 in any six-month
26 period.
27 (2) For each such method of competition, act or practice
28 which the person did not know nor reasonably should have
29 known was a violation, a penalty of not more than $1,000 for
30 each violation but not to exceed an aggregate penalty of
19850H1962B2642 - 161 -
1 $10,000 in any six-month period.
2 (3) For each violation of an order issued by the
3 commissioner pursuant section 1507(e) (relating to
4 administrative action) while such order is in effect, a
5 penalty of not more than $10,000.
6 § 1510. Exclusions.
7 Health care plans administered by joint boards of trustees
8 pursuant to section 302 of the Labor Management Relations Act of
9 1947 (61 Stat. 157, 29 U.S.C. § 186) and health care plans
10 administered by the employer pursuant to collective bargaining
11 agreements which pay benefits from the assets of the trust or
12 the funds of the employer as opposed to payments through an
13 insurance company are not subject to this chapter.
14 CHAPTER 17
15 REPORTING REQUIREMENTS
16 Sec.
17 1701. Definitions.
18 1702. Disposal of assets.
19 1703. Ceding or reinsurance.
20 1704. Business operations.
21 1705. Reports of financial condition.
22 1706. Additional reports from foreign or alien entities.
23 § 1701. Definitions.
24 The following words and phrases when used in this chapter
25 shall have the meanings given to them in this section unless the
26 context clearly indicates otherwise:
27 "Disposal." Any sale, transfer, exchange, assignment,
28 alienation or other conveyance of an interest in assets. The
29 term does not include a ceding of policies pursuant to a
30 reinsurance contract.
19850H1962B2642 - 162 -
1 "Total assets." The dollar amount of the entity's total
2 assets as reported in its most recent convention statement.
3 § 1702. Disposal of assets.
4 Any domestic insurance entity which within any period of 30
5 days, by one or more transactions, disposes of assets which, in
6 the aggregate, amount to more than 10% of its total assets,
7 shall send written notification thereof to the commissioner. The
8 notification shall be given within ten business days prior to
9 the making of the disposal, specify the nature and amount
10 thereof and identify all of the parties thereto.
11 § 1703. Ceding or reinsurance.
12 Any domestic insurance entity, except a domestic life
13 insurance company, which during any period of 12 consecutive
14 months, by any contract of reinsurance, cedes an amount of its
15 insurance on which the total gross reinsurance premiums are more
16 than 50% of the unearned premiums on the net amount of its
17 insurance in force at the beginning of such period, shall give
18 written notification thereof to the commissioner. Any domestic
19 life insurance company which reinsures its whole risk on any
20 individual life or joint lives or reinsures policies which,
21 during any period of 12 consecutive months, in the aggregate,
22 amount to more than 50% of its insurance in force shall give
23 written notification thereof to the commissioner. The
24 notification required hereunder shall be given at least ten
25 business days before the date the reinsurance takes effect and
26 shall specify the nature and amount thereof and identify the
27 parties thereto. The requirements of this section do not apply
28 to reinsurance made in the ordinary course of business covering
29 reinsurance of specified individual risks under agreements
30 relating to current business and shall be in addition to the
19850H1962B2642 - 163 -
1 requirements contained in section 3512 (relating to
2 reinsurance).
3 § 1704. Business operations.
4 (a) General rule.--Each stock or mutual insurance entity or
5 employers mutual liability association and organization,
6 including the State Workmen's Insurance Fund, which is subject
7 to Chapter 19 (relating to insurance rates) or section 5523
8 (relating to rating plans) shall maintain uniform
9 classifications of accounts and records as may be prescribed by
10 the commissioner and shall file such uniform reports relative to
11 their business and transactions as the commissioner deems
12 necessary. These reports, except when otherwise provided by law,
13 shall be filed on the date and in the form determined by the
14 commissioner.
15 (b) Penalties.--Any insurance entity or organization which
16 violates subsection (a) shall pay a sum not to exceed $100 per
17 day for each day during which the violation continues and, upon
18 notice by the commissioner, its authority to do new business
19 shall cease during that time. For willfully making false
20 reports, any insurance entity or organization subject to this
21 section and the persons making oath to or subscribing the same
22 shall severally be punished by a fine of not less than $500 nor
23 more than $5,000. A person who willfully makes oath to such
24 false report commits perjury.
25 (c) Procedures.--An action shall not be taken by the
26 commissioner under subsection (b) except after a hearing held
27 upon ten days' written notice to the parties concerned.
28 Classifications of accounts and records or reports shall be
29 prescribed by the commissioner under subsection (a) only upon
30 notice and after hearing to all parties affected thereby and
19850H1962B2642 - 164 -
1 regulations relating thereto shall be promulgated by the
2 commissioner at least six months before the effective date
3 thereof.
4 § 1705. Reports of financial condition.
5 (a) General rule.--Every stock and mutual insurance entity,
6 if subject to Part III (relating to organization of insurance
7 entities), shall annually, by March 1, file in the office of the
8 commissioner a statement showing its financial condition on
9 December 31 of the previous year and its business of that year.
10 These entities shall, within 30 days after requested by the
11 commissioner, render any additional statement concerning its
12 affairs and financial condition which the commissioner may
13 require. The commissioner shall prescribe and furnish forms to
14 each of the entities for their statements. Any alien insurance
15 company, if subject to Part III and doing business in this
16 Commonwealth, shall disclose only the business done in the
17 United States and the assets held by and for them within the
18 United States for the protection of policyholders in the United
19 States.
20 (b) Failure to file.--Any entity which neglects to timely
21 file a statement required under subsection (a) in the required
22 form shall pay to the commissioner a sum not to exceed $100 for
23 each day during which the neglect continues. Upon notice by the
24 commissioner, its authority to do new business shall cease while
25 the default continues.
26 (c) False statements.--For willfully making false entries in
27 a statement filed under subsection (a), the entity and the
28 individuals making oath to or subscribing to the oath shall
29 severally be subject to a fine of not less than $500 nor more
30 than $5,000.
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1 § 1706. Additional reports from foreign or alien entities.
2 (a) General rule.--Every foreign or alien stock or mutual
3 insurance entity authorized to do business in this Commonwealth,
4 if subject to Part III (relating to organization of insurance
5 entities), shall annually report to the Department of Revenue by
6 March 15 under oath of its president, secretary or attorney. The
7 report shall show the gross premiums of every character and
8 description received from business transacted in this
9 Commonwealth during the year ending the preceding December 31,
10 whether the premiums were received in money or in the form of
11 notes, credits or any other substitute for money and whether
12 they were collected in this Commonwealth or elsewhere.
13 (b) Taxation.--The entity shall pay to the State Treasury
14 the requisite tax upon all these premiums. In making the report,
15 the entities may deduct, from the gross premiums received, all
16 premiums returned on policies canceled or not taken and all
17 premiums actually received for reinsurances. Stock companies
18 with participating features may also deduct that portion of the
19 premiums returned to the policyholders. Life insurance companies
20 may deduct dividends declared and actually used by policyholders
21 in payment of renewal premiums. Mutual entities may deduct that
22 proportion of the advance premium or deposit returned to members
23 upon the expiration of termination of their contracts. To the
24 extent the provisions of this section supply provisions of the
25 act of April 9, 1929 (P.L.343, No.176), known as The Fiscal
26 Code, relating to amounts which foreign entities may deduct from
27 gross premiums received from business transacted in this
28 Commonwealth in making reports with the Department of Revenue,
29 the provisions of this section shall supersede those provisions
30 of The Fiscal Code.
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1 (c) Applicability.--This section does not apply to domestic
2 fire insurance companies as to policies covering only those
3 classes of insurance authorized by section 3302(b)(1), (2) or
4 (3) (relating to authorized classes of insurance), other than
5 insurance upon automobiles.
6 (d) Definition.--As used in this section the term "gross
7 premium" means the amount of dues, fees and premiums stated in
8 the policy contracts.
9 CHAPTER 19
10 INSURANCE RATES
11 Sec.
12 1901. General provisions.
13 1902. Scope of chapter.
14 1903. Ratemaking.
15 1904. Rate filings.
16 1905. Disapproval of filings.
17 1906. Rating organizations.
18 1907. Deviations.
19 1908. Appeal by minority.
20 1909. Information to be furnished insureds.
21 1910. Hearings and appeals of insureds.
22 1911. Advisory organizations.
23 1912. Joint underwriting or joint reinsurance.
24 1913. Examinations.
25 1914. Recording and reporting of loss and expense experience.
26 1915. False or misleading information.
27 1916. Assigned risks.
28 1917. Penalties.
29 1918. Hearing procedure and judicial review.
30 § 1901. General provisions.
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1 (a) Short title of chapter.--This chapter shall be known and
2 may be cited as the Insurance Rate Regulatory Act.
3 (b) Purpose of chapter.--The purpose of this chapter is to
4 promote the public welfare by regulating insurance rates to the
5 end that they shall not be excessive, inadequate or unfairly
6 discriminatory, to enable authorized insurers to meet all
7 requirements of the insuring public of this Commonwealth, and to
8 authorize and regulate cooperative action among insurers in
9 ratemaking and in other matters within the scope of this
10 chapter. This chapter is not intended to prohibit or discourage
11 reasonable competition or prohibit or encourage uniformity in
12 insurance rates, rating systems, rating plans or practices. This
13 chapter shall be liberally interpreted to carry into effect its
14 purposes as set forth in this section.
15 § 1902. Scope of chapter.
16 (a) Casualty insurance.--This chapter applies to all classes
17 and kinds of insurance which may be written by stock or mutual
18 casualty insurance entities, including fidelity, surety and
19 guaranty bonds and all other forms of motor vehicle insurance,
20 and to title insurance on risks or operations in this
21 Commonwealth.
22 (b) Fire and marine insurance.--This chapter also applies to
23 all classes and kinds of insurance which may be written by stock
24 or mutual fire, marine or fire and marine insurance entities on
25 risks located in this Commonwealth. Inland marine insurance
26 shall be deemed to include insurance defined by law or by ruling
27 of the commissioner or as established by general custom of the
28 business as inland marine insurance.
29 (c) Exclusions relating to casualty insurance.--With respect
30 to insurance described in subsection (a), this chapter does not
19850H1962B2642 - 168 -
1 apply to:
2 (1) Reinsurance, other than joint reinsurance to the
3 extent stated in section 1912 (relating to joint underwriting
4 or joint reinsurance).
5 (2) Accident and health insurance.
6 (3) Insurance against loss or damage to aircraft or
7 against liability arising out of the ownership, maintenance
8 or use of aircraft.
9 (4) Workmen's compensation insurance.
10 (5) Insurance covering loss in excess of at least
11 $10,000 from any one event issued to self-insurers as defined
12 in regulations which the commissioner shall promulgate where
13 the rate is not made by a rating organization.
14 (d) Exclusions relating to fire and marine insurance.--With
15 respect to insurance described in subsection (b), this chapter
16 does not apply to:
17 (1) Reinsurance, other than joint reinsurance to the
18 extent stated in section 1912.
19 (2) Insurance of vessels or craft, their cargoes, marine
20 builders' risks, marine protection and indemnity, or other
21 risks commonly insured under marine as distinguished from
22 inland marine insurance policies.
23 (3) Insurance of hulls of aircraft, including their
24 accessories and equipment, or against liability arising out
25 of the ownership, maintenance or use of aircraft.
26 (4) Motor vehicle insurance or insurance against
27 liability arising out of the ownership, maintenance or use of
28 motor vehicles.
29 (5) Perpetual policies of insurance issued in
30 consideration of an initial deposit of moneys with the
19850H1962B2642 - 169 -
1 insurer to be held by it during the time such policies are in
2 force and to be returned to the insureds, in whole or in
3 part, upon cancellation of the policies.
4 (e) Conflicting regulation.--If any kind of insurance,
5 subdivision or combination thereof, or type of coverage subject
6 to this chapter, is also subject to regulation by any other
7 provision of this title which regulates rates, an insurer to
8 which both provisions are otherwise applicable shall file with
9 the commissioner a designation as to which set of provisions
10 shall be applicable to it with respect to the kind of insurance,
11 subdivision or combination thereof, or type of coverage.
12 § 1903. Ratemaking.
13 All rates shall be made in accordance with the following
14 provisions:
15 (1) Due consideration shall be given to past and
16 prospective loss experience in and outside this Commonwealth;
17 to physical hazards; to safety and loss prevention factors;
18 to underwriting practice and judgment to the extent
19 appropriate; to conflagration and catastrophe hazards, if
20 any; to a reasonable margin for underwriting profit and
21 contingencies; to dividends, savings or unabsorbed premium
22 deposits allowed or returned by insurers to their
23 policyholders, members or subscribers; to past and
24 prospective expenses in and outside this Commonwealth; and to
25 all other relevant factors in and outside this Commonwealth.
26 In the case of fire insurance rates, consideration shall be
27 given to the experience of the fire insurance business during
28 a period of not less than the most recent five-year period
29 for which such experience is available.
30 (2) In the case of insurance described in section
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1 1902(a) (relating to scope of chapter), the systems of
2 expense provisions included in the rates for use by any
3 insurer or group of insurers may differ from those of other
4 insurers or groups of insurers to reflect the requirements of
5 the operating methods of any such insurer or group with
6 respect to any kind of insurance, or with respect to any
7 subdivision or combination thereof for which subdivision or
8 combination separate expense provisions are applicable.
9 (3) In the case of insurance described in section
10 1902(a), risks may be grouped by classifications for the
11 establishment of rates and minimum premiums. Classification
12 rates may be modified to produce rates for individual risks
13 in accordance with rating plans which establish standards for
14 measuring variations in hazards or expense provisions, or
15 both. These standards may measure any differences among risks
16 that can be demonstrated to have a probable effect upon
17 losses or expenses.
18 (4) In the case of insurance described in section
19 1902(b), manual, minimum, class rates, rating schedules or
20 rating plans shall be made and adopted, except in the case of
21 specific inland marine rates on risks specially rated, and
22 except in the case of special rates on other than inland
23 marine risks where manual, minimum, class rates, rating
24 schedules or rating plans are not applicable.
25 (5) Rates shall not be excessive, inadequate or unfairly
26 discriminatory.
27 § 1904. Rate filings.
28 (a) General rule.--Every insurer shall file with the
29 commissioner, except as to inland marine risks which by general
30 custom of the business are not written according to manual rates
19850H1962B2642 - 171 -
1 or rating plans, every manual, minimum, class rate, rating
2 schedule or rating plan, every other rating rule and every
3 modification of any of the foregoing which it proposes to use,
4 and shall file every special rate on other than inland marine
5 risks as mentioned in section 1903(4) (relating to ratemaking).
6 Every such filing shall state the proposed effective date
7 thereof and shall indicate the character and extent of the
8 coverage contemplated. When a filing is not accompanied by
9 supporting information and the commissioner lacks sufficient
10 information to determine whether the filing meets the
11 requirements of this chapter, he may require the insurer to
12 furnish that information. Any filing may be supported by the
13 experience or judgment of the insurer or rating organization
14 making the filing, the experience of other insurers or rating
15 organizations, or any other factors which the insurer or rating
16 organization deems relevant. A filing and any supporting
17 information shall be open to public inspection after the filing
18 becomes effective. Specific inland marine rates on risks
19 specially rated, made by a rating organization, shall be filed
20 with the commissioner. An insurer shall not make or issue a
21 contract or policy except in accordance with filings or rates
22 which are in effect for the insurer under this chapter, unless
23 permitted to do so under this chapter.
24 (b) Rating organization.--An insurer may satisfy its
25 obligations to make the required filings by becoming a member
26 of, or a subscriber to, a licensed rating organization which
27 makes such filings, and by authorizing the commissioner to
28 accept the organization's filings on its behalf.
29 (c) Review.--The commissioner shall review such of the
30 filings as may be necessary to review in order to carry out the
19850H1962B2642 - 172 -
1 purposes of this chapter.
2 (d) Effect of filing.--Subject to the exceptions under
3 subsections (e) and (f), each filing shall be on file for a
4 waiting period of 30 days before it becomes effective, which
5 period may be extended by the commissioner for an additional
6 period not to exceed 30 days upon written notice within the
7 waiting period to the insurer or rating organization which made
8 the filing. Upon written application by the insurer or rating
9 organization, the commissioner may authorize a filing or a part
10 thereof which he has reviewed to become effective before the
11 expiration of the waiting period or any extension thereof. A
12 filing shall be deemed to meet the requirements of this chapter
13 and to become effective unless disapproved by the commissioner
14 within the waiting period of any extension thereof.
15 (e) Surety or guaranty bonds.--With respect to insurance
16 described in section 1902(a) (relating to scope of chapter), any
17 filing with respect to a surety or guaranty bond required by law
18 or by court or executive order or by order, rule or regulation
19 of a public body, not covered by a previous filing, or any
20 filing with respect to a contract or a policy covering any risk
21 or kind of insurance or subdivision thereof for which
22 classification rates do not generally exist in the industry, or
23 which by reason of rarity or peculiar characteristics does not
24 lend itself to normal classification or rating procedure, shall
25 become effective when filed and shall be deemed to meet the
26 requirements of this chapter.
27 (f) Fire and marine insurance.--With respect to insurance
28 described in section 1902(b), specific inland marine rates on
29 risks specially rated by a rating organization shall become
30 effective when filed and shall be deemed to meet the
19850H1962B2642 - 173 -
1 requirements of this chapter until such time as the commissioner
2 reviews the filing and so long thereafter as the filing remains
3 in effect. Any special rate mentioned in section 1903(4) on a
4 contract or policy covering other than inland marine risks shall
5 be deemed to meet the requirements of this chapter until such
6 time as the commissioner reviews the filing and so long
7 thereafter as the filing remains in effect.
8 (g) Waiver or modification.--Under such rules and
9 regulations as he shall adopt, the commissioner may by written
10 order suspend or modify the requirement of filing as to any kind
11 of insurance, subdivision or combination thereof, or as to
12 classes of risks, the rates for which cannot practicably be
13 filed before they are used. These orders, rules and regulations
14 shall be made known to insurers and rating organizations
15 affected thereby. The commissioner may make such examination as
16 he may deem advisable to ensure that any rates affected by the
17 order are not excessive, inadequate or unfairly discriminatory.
18 (h) Modification for specific risks.--Upon the written
19 consent of the insured stating his reasons therefor, filed with
20 and approved by the commissioner, a rate in excess of that
21 provided by a filing otherwise applicable may be used on any
22 specific risk. The rate shall become effective when the consent
23 is filed and shall be deemed to meet the requirements of this
24 chapter until such time as the commissioner reviews the filing
25 and so long thereafter as the filing remains in effect.
26 § 1905. Disapproval of filings.
27 (a) Standard of review.--A filing or modification thereof
28 shall not be disapproved if the rates in connection therewith
29 meet the requirements of this chapter.
30 (b) Hearing for insurer.--Upon the review at any time by the
19850H1962B2642 - 174 -
1 commissioner of a filing, he shall, before issuing an order of
2 disapproval, hold a hearing upon not less than ten days' written
3 notice, specifying the matters to be considered at the hearing,
4 to every insurer and rating organization which made the filing.
5 An insurer or organization may at any time withdraw a filing or
6 a part thereof, subject to the provisions of section 1907
7 (relating to deviations) in the case of a deviation filing.
8 (c) Hearing for aggrieved parties.--Any person or
9 organization aggrieved with respect to any filing which is in
10 effect, except the insurer or rating organization which made the
11 filing, may make written application to the commissioner for a
12 hearing thereon. The application shall specify the grounds to be
13 relied upon. If the commissioner finds that the application may
14 justify relief he shall, within 30 days after receipt of the
15 application, hold a hearing upon not less than ten days' written
16 notice to the applicant and to every insurer and rating
17 organization which made the filing.
18 (d) Decision of commissioner.--If, after the hearing, the
19 commissioner finds that the filing or a part thereof does not
20 meet the requirements of this chapter, he shall issue an order
21 specifying his objections. If the filing has become effective
22 under section 1904 (relating to rate filings) or otherwise, the
23 order shall state a time within a reasonable period thereafter,
24 at which the filing or part thereof shall be deemed no longer
25 effective. Copies of the order shall be sent to the applicant
26 and to every insurer and rating organization affected. The order
27 shall not affect any contract or policy made or issued prior to
28 the expiration of the period set forth in the order.
29 § 1906. Rating organizations.
30 (a) General rule.--Any person located in or outside this
19850H1962B2642 - 175 -
1 Commonwealth may apply to the commissioner for a license as a
2 rating organization for the kinds of insurance subdivisions,
3 classes of risk or part or combination thereof specified in its
4 application. The application shall include:
5 (1) A copy of the applicant's constitution, its articles
6 of agreement or association, or its certificate of
7 incorporation, and of its bylaws, rules and regulations
8 governing the conduct of its business.
9 (2) A list of its members and subscribers.
10 (3) The name and address of a resident of this
11 Commonwealth upon whom notices or orders of the commissioner
12 or process affecting the rating organization may be served.
13 (4) A statement of its qualifications as a rating
14 organization.
15 If the commissioner finds that the applicant is competent,
16 trustworthy and otherwise qualified to act as a rating
17 organization and that the documents submitted under paragraph
18 (1) conform to the requirements of law, he shall issue a license
19 specifying the kinds of insurance, subdivisions, classes of risk
20 or part or combination thereof for which the applicant is
21 authorized to act as a rating organization. The application
22 shall be granted or denied in whole or in part by the
23 commissioner within 60 days of the date of its filing with him.
24 Licenses issued under this section shall remain in effect for
25 three years unless sooner suspended or revoked by the
26 commissioner. The fee for the license shall be $25. Licenses may
27 be suspended or revoked by the commissioner after hearing upon
28 notice, if the rating organization ceases to meet the
29 requirements for licensure under this section. Every rating
30 organization shall notify the commissioner promptly of every
19850H1962B2642 - 176 -
1 change in the items listed in paragraph (1), (2) or (3).
2 (b) Subscribers.--Subject to rules and regulations approved
3 by the commissioner, each rating organization shall permit any
4 insurer, not a member, to be a subscriber to its rating services
5 for any kind of insurance, subdivision, class of risk or part or
6 combination thereof for which it is authorized to act as a
7 rating organization. Notice of proposed changes in its rules and
8 regulations shall be given to subscribers. Each rating
9 organization shall furnish its rating services without
10 discrimination to its members and subscribers. The
11 reasonableness of any rule or regulation in its application to
12 subscribers or the refusal of any rating organization to admit
13 an insurer as a subscriber shall, at the request of any
14 subscriber or any such insurer, be reviewed by the commissioner
15 at a hearing held upon at least ten days' written notice to the
16 rating organization and to the subscriber or insurer. If the
17 commissioner finds that the rule or regulation is unreasonable
18 in its application to subscribers, he shall order that the rule
19 or regulation shall not apply to the subscribers. If the rating
20 organization fails to grant or reject an insurer's application
21 for subscribership within 30 days after it is made, the insurer
22 may request a review by the commissioner as if the application
23 had been rejected. If the commissioner finds that the insurer
24 has been refused admittance to the rating organization as a
25 subscriber without justification, he shall order the rating
26 organization to admit the insurer as a subscriber. If he finds
27 that the action of the rating organization was justified, he
28 shall make an order affirming its action.
29 (c) Limitations on certain payments.--A rating organization
30 shall not adopt any rule the effect of which would be to
19850H1962B2642 - 177 -
1 prohibit or regulate the payment of dividends, savings or
2 unabsorbed premium deposits allowed or returned by insurers to
3 their policyholders, members or subscribers.
4 (d) Cooperative activities.--Cooperation among rating
5 organizations or among rating organizations and insurers, and
6 concert of action among insurers under the same general
7 management and control in ratemaking or in other matters within
8 the scope of this chapter is permitted, but the filings
9 resulting therefrom are subject to this chapter. The
10 commissioner may review these activities and practices and, if
11 after a hearing he finds that any activity or practice is
12 unfair, unreasonable or otherwise inconsistent with this
13 chapter, he may issue a written order specifying his objections
14 and requiring the discontinuance thereof.
15 (e) Fire and marine insurance.--With respect to activities
16 of rating organizations relating to insurance described in
17 section 1902(b) (relating to scope of chapter):
18 (1) The rating organization may provide for the
19 examination of policies, daily reports, binders, renewal
20 certificates, endorsements or other evidences of insurance,
21 or the cancellation thereof and may make reasonable rules
22 governing their submission. The rules shall contain a
23 provision that if any insurer does not within 60 days furnish
24 satisfactory evidence to the rating organization of the
25 correction of any error or omission previously called to its
26 attention by the rating organization, the rating organization
27 shall notify the commissioner thereof. All information so
28 submitted for examination shall be confidential.
29 (2) The rating organization may subscribe for or
30 purchase actuarial, technical or other services, which shall
19850H1962B2642 - 178 -
1 be available to all members and subscribers without
2 discrimination.
3 § 1907. Deviations.
4 Every member of or subscriber to a rating organization shall
5 adhere to the filings made on its behalf by the organization
6 except as follows:
7 (1) In the case of insurance described in section
8 1902(a) (relating to scope of chapter), the insurer may file
9 with the commissioner a uniform percentage decrease or
10 increase to be applied to the premiums produced by the rating
11 system so filed for a kind of insurance, or for a class of
12 insurance which is found by the commissioner to be a proper
13 rating unit for the application of such uniform percentage
14 decrease or increase, or for a subdivision of a kind of
15 insurance either comprised of a group of manual
16 classifications which is treated as a separate unit for
17 ratemaking purposes or for which separate expense provisions
18 are included in the filings of the rating organization. The
19 deviation filing shall specify the basis for the modification
20 and shall be accompanied by the data upon which the applicant
21 relies. A copy of the filing and data shall be sent
22 simultaneously to the rating organization.
23 (2) In the case of insurance described in section
24 1902(b) the insurer may file with the commissioner a
25 deviation from the class rates, schedules, rating plans or
26 rules, respecting any kind of insurance, or class of risk
27 within a kind of insurance or combination thereof. The
28 deviation filing shall specify the basis for the
29 modification, and a copy thereof shall be sent to the rating
30 organization at the time of filing.
19850H1962B2642 - 179 -
1 Each deviation filing shall be on file for 30 days before it
2 becomes effective, unless the commissioner reviews and
3 authorizes the filing to become effective sooner, and shall be
4 subject to the provisions of section 1905 (relating to
5 disapproval of filings). Each deviation shall be effective for a
6 period of not less than one year from the date the deviation is
7 filed unless terminated sooner with the approval of the
8 commissioner or under section 1905.
9 § 1908. Appeal by minority.
10 (a) Right of appeal.--Any member of or subscriber to a
11 rating organization may appeal to the commissioner from any
12 decision of the rating organization approving or rejecting any
13 proposed change in or addition to the filings of the rating
14 organization. The failure of a rating organization to make a
15 decision within 30 days after submission to it of a proposal
16 under this section shall be deemed a rejection of the proposal.
17 (b) Decision by commissioner.--The commissioner shall, after
18 a hearing held upon not less than ten days' written notice to
19 the appellant and to the rating organization, issue an order
20 approving the decision of the rating organization or directing
21 it to give further consideration to the proposal and to take
22 action upon it within 30 days. If the appeal is from a decision
23 of the rating organization rejecting a proposed addition to its
24 filings, he may issue an order directing the rating organization
25 to make an addition to its filings on behalf of its members and
26 subscribers consistent with his findings within a reasonable
27 time. If the appeal is from a decision of the rating
28 organization with regard to a rate on a proposed change in or
29 addition to its filings relating to the character and extent of
30 coverage, he shall approve the rate applied by the rating
19850H1962B2642 - 180 -
1 organization or the rate suggested by the appellant if either
2 rate is in accordance with this chapter.
3 (c) Casualty insurance.--In the case of insurance described
4 in section 1902(a) (relating to scope of chapter), if the appeal
5 is based upon the failure of the rating organization to make a
6 filing on behalf of the member or subscriber which is based on a
7 system of expense provisions which differs, in accordance with
8 section 1903(2) (relating to ratemaking), from the system of
9 expense provisions included in a filing made by the rating
10 organization, the commissioner shall, if he grants the appeal,
11 order the rating organization to make the requested filing for
12 use by the appellant. In deciding the appeal, the commissioner
13 shall apply the standards set forth in section 1903.
14 § 1909. Information to be furnished insureds.
15 Every rating organization and every insurer which makes its
16 own rates shall, within a reasonable time after receiving
17 written request therefor and upon payment of such reasonable
18 charge as it may make, furnish all pertinent information as to
19 the rate to any insured affected by a rate made by it or to the
20 authorized representative of such an insured. Any rating
21 organization or insurer which makes its own rate, with respect
22 to rates of fire insurance on property located in this
23 Commonwealth, is subject to section 12 of the act of April 27,
24 1927 (P.L.450, No.291), referred to as the State Fire Marshal
25 Law.
26 § 1910. Hearings and appeals of insureds.
27 Every rating organization and every insurer which makes its
28 own rates shall provide reasonable means whereby any person
29 aggrieved by the application of its rating system may be heard,
30 in person or by his authorized representative, on his written
19850H1962B2642 - 181 -
1 request to review the manner in which the rating system has been
2 applied in connection with the insurance afforded him. If the
3 rating organization or insurer fails to grant or reject such
4 request within 30 days after it is made, the applicant may
5 proceed as if his application had been rejected. Any party
6 affected by the action of the rating organization or insurer on
7 the request may, within 30 days after written notice of the
8 action, appeal to the commissioner, who, after a hearing held
9 upon not less than ten days' written notice to the appellant and
10 to the rating organization or insurer, may affirm or reverse the
11 action.
12 § 1911. Advisory organizations.
13 (a) Filing with commissioner.--Every advisory organization
14 shall file with the commissioner:
15 (1) A copy of its constitution, its articles of
16 agreement or association or its certificate of incorporation
17 and of its bylaws, rules and regulations governing its
18 activities.
19 (2) A list of its members.
20 (3) The name and address of a resident of this
21 Commonwealth upon whom notices or orders of the commissioner
22 or process issued at his discretion may be served.
23 (4) An agreement that the commissioner may examine the
24 advisory organization in accordance with section 1913
25 (relating to examinations).
26 (b) Unreasonable practices.--If, after a hearing, the
27 commissioner finds that the furnishing of such information or
28 assistance involves any act or practice which is unfair or
29 unreasonable or otherwise inconsistent with the provisions of
30 this chapter, he may issue a written order specifying his
19850H1962B2642 - 182 -
1 objections and requiring the discontinuance of the act or
2 practice.
3 (c) Violation of orders.--An insurer which makes its own
4 filings or rating organization shall not support its filings by
5 statistics or adopt ratemaking recommendations furnished to it
6 by an advisory organization which has not complied with this
7 section or with an order under subsection (b) involving its
8 statistics or recommendations. If the commissioner finds the
9 insurer or rating organization to be in violation of this
10 subsection, he may issue an order requiring the discontinuance
11 of the violation.
12 (d) Definition.--As used in this section the term "advisory
13 organization" means any group, association or other organization
14 of insurers, located in or outside this Commonwealth, which
15 assists insurers which make their own filings or rating
16 organizations in ratemaking, by the collection and furnishing of
17 loss or expense statistics or by the submission of
18 recommendations, but does not make filings under this chapter.
19 § 1912. Joint underwriting or joint reinsurance.
20 (a) Applicability.--Every group, association or other
21 organization of insurers which engages in joint underwriting or
22 joint reinsurance shall be subject to this section and shall be
23 subject, with respect to joint underwriting, to all provisions
24 of this chapter and, with respect to joint reinsurance, to
25 sections 1913 (relating to examinations), 1917 (relating to
26 penalties) and 1918 (relating to hearing procedure and judicial
27 review). This section does not apply to the group action of
28 insurers under the same general management and control.
29 (b) Administrative action.--If, after a hearing, the
30 commissioner finds that any activity or practice of any such
19850H1962B2642 - 183 -
1 group, association or other organization is unfair or
2 unreasonable or otherwise inconsistent with the provisions of
3 this chapter, he may issue a written order specifying his
4 objections and requiring the discontinuance of the activity or
5 practice.
6 § 1913. Examinations.
7 The commissioner shall, at least once in five years, make an
8 examination of each rating organization licensed in this
9 Commonwealth under section 1906 (relating to rating
10 organizations), and he may, as often as necessary, make an
11 examination of each advisory organization referred to in section
12 1911 (relating to advisory organizations) and of each group,
13 association or other organization referred to in section 1912
14 (relating to joint underwriting or joint reinsurance). The
15 reasonable costs of any examination shall be paid by the
16 organization examined upon presentation to it of a detailed
17 account of these costs. The officer, manager, agents and
18 employees of any such organization may be examined at any time
19 under oath and shall exhibit all books, records, accounts,
20 documents or agreements governing its method of operation. The
21 commissioner shall furnish two copies of the examination report
22 to the organization examined and shall notify it that it may,
23 within 20 days thereafter, request a hearing on the report or on
24 any facts or recommendations therein. Before filing a report for
25 public inspection, the commissioner shall grant a hearing to the
26 organization examined. The report of any examination, when filed
27 for public inspection, shall be admissible in evidence in any
28 action or proceeding brought by the commissioner against the
29 organization examined or its officers or agents and shall be
30 prima facie evidence of the facts stated therein. The
19850H1962B2642 - 184 -
1 commissioner may withhold the report of any examination from
2 public inspection for such time as he deems proper. In lieu of
3 an examination, the commissioner may accept the report of an
4 examination made by the insurance supervisory official of
5 another state pursuant to the laws of that state.
6 § 1914. Recording and reporting of loss and expense experience.
7 The commissioner shall promulgate reasonable rules and
8 statistical plans, reasonably adapted to each of the rating
9 systems on file with him, which may be modified from time to
10 time and which shall be used by each insurer in the recording
11 and reporting of its loss and countrywide expense experience, in
12 order that the experience of all insurers may be made available
13 at least annually in such form and detail as necessary to aid
14 him in determining whether rating systems comply with the
15 standards set forth in this chapter. These rules and plans may
16 also provide for the recording and reporting of expense
17 experience items which are specifically applicable to this
18 Commonwealth and are not susceptible of determination by a
19 prorating of countrywide expense experience. In promulgating the
20 rules and plans, the commissioner shall give due consideration
21 to the rating systems on file with him and, in order that the
22 rules and plans may be as uniform as practicable among the
23 several states, to the rules and the form of the plans used for
24 rating systems in other states. The rules and plans shall be
25 drafted so as not to place an unreasonable burden of expense on
26 any insurer. An insurer shall not be required to record or
27 report its loss experience on a classification basis that is
28 inconsistent with the rating system filed by it, nor shall any
29 insurer be required to report its experience to any agency of
30 which it is not a member or subscriber. The commissioner may
19850H1962B2642 - 185 -
1 designate one or more rating organizations or other agencies to
2 assist him in making compilations of experience information;
3 these compilations shall be made available, subject to
4 reasonable regulations promulgated by the commissioner, to
5 insurers and rating organizations.
6 § 1915. False or misleading information.
7 A person or organization shall not willfully withhold
8 information from, or knowingly give false or misleading
9 information to, the commissioner, any statistical agency
10 designated by the commissioner, any rating organization or any
11 insurer, which will affect the rates or premiums chargeable
12 under this chapter.
13 § 1916. Assigned risks.
14 With respect to insurance described in section 1902(a)
15 (relating to scope of chapter), agreements may be made among
16 insurers with respect to the equitable apportionment among them
17 of insurance which may be afforded applicants who are in good
18 faith entitled to but who are unable to procure such insurance
19 through ordinary methods, and the insurers may agree among
20 themselves on the use of reasonable rate modifications for such
21 insurance. These agreements and rate modifications shall be
22 subject to the approval of the commissioner.
23 § 1917. Penalties.
24 (a) Fines.--The commissioner may, if he finds that any
25 person or organization has violated this chapter, impose a
26 penalty of not more than $50 for each violation, but, if he
27 finds the violation to be willful, he may impose a penalty of
28 not more than $500 for the violation. These penalties may be in
29 addition to any other penalty provided by law.
30 (b) Suspension of license.--The commissioner may suspend the
19850H1962B2642 - 186 -
1 license of any rating organization or insurer which fails to
2 comply with an order of the commissioner within the time limited
3 by the order or any extension thereof granted by the
4 commissioner. The commissioner shall not suspend the license of
5 any rating organization or insurer for failure to comply with an
6 order until the time prescribed for an appeal therefrom has
7 expired or, if an appeal has been taken, until the order has
8 been affirmed. The commissioner may determine when a suspension
9 of license shall become effective, and it shall remain in effect
10 for the period fixed by him, unless he modifies or rescinds the
11 suspension, or until the order upon which suspension is based is
12 modified, rescinded or reversed by a court.
13 (c) Procedure.--A penalty shall not be imposed or a license
14 shall not be suspended or revoked except upon a written order of
15 the commissioner, stating his findings, made after a hearing
16 held upon not less than ten days' written notice to the person
17 or organization specifying the alleged violation.
18 § 1918. Hearing procedure and judicial review.
19 (a) Right to hearing.--Any insurer, rating organization or
20 other person aggrieved by any action of the commissioner, except
21 disapproval of a filing or a part thereof under section 1905
22 (relating to disapproval of filings), or by any rule or
23 regulation promulgated by the commissioner, may file a complaint
24 with the commissioner and have a hearing thereon before him.
25 Pending the hearing and the decision thereon, the commissioner
26 may suspend or postpone the effective date of his previous
27 action, rule or regulation.
28 (b) Procedure.--All such hearings and all hearings provided
29 for in section 1905 shall be conducted, and the decision of the
30 commissioner on the issue or filing involved shall be rendered,
19850H1962B2642 - 187 -
1 under Title 2 (relating to administrative law and procedure).
2 (c) Right to appeal.--Any insurer, rating organization or
3 person aggrieved by any adjudication, including a disapproval of
4 a filing or portion thereof under section 1905, may appeal to
5 the court therefrom.
6 CHAPTER 21
7 RECIPROCAL AND INTER-INSURANCE EXCHANGES
8 Sec.
9 2101. General provisions.
10 2102. Authority to exchange.
11 2103. Declarations.
12 2104. Certificates of attorney.
13 2105. Statements to be filed by attorney.
14 2106. Examination by commissioner.
15 2107. Reserves.
16 2108. Fees and taxes.
17 2109. Penalty.
18 § 2101. General provisions.
19 (a) Definitions.--The following words and phrases when used
20 in this chapter shall have the meanings given to them in this
21 subsection unless the context clearly indicates otherwise:
22 "Attorney." The attorney, agent or other representative
23 authorized by the subscribers to perform the duties set forth in
24 this chapter on their behalf.
25 "Subscriber." Any person who exchanges reciprocal or inter-
26 insurance contracts.
27 (b) Applicability.--This chapter does not apply to title
28 insurance agents and brokers or to the business of title
29 insurance.
30 § 2102. Authority to exchange.
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1 (a) General rule.--Persons of this Commonwealth may exchange
2 reciprocal or inter-insurance contracts with each other, or with
3 persons of other states and countries, providing indemnity among
4 themselves from any loss which may be insured against under this
5 title.
6 (b) Corporations.--Any corporation organized under the laws
7 of this Commonwealth shall, in addition to the rights, powers
8 and franchises specified in its articles of incorporation, have
9 full power and authority to exchange insurance contracts of the
10 kind and character mentioned in this chapter.
11 (c) Execution of contracts.--Contracts authorized by this
12 chapter may be executed by the attorney.
13 § 2103. Declarations.
14 The subscribers shall, through their attorney, file with the
15 commissioner a declaration verified by the attorney, including
16 the following:
17 (1) The name of the office at which the subscribers
18 propose to exchange the indemnity contracts. This name shall
19 not be so similar to any other name previously adopted by a
20 similar exchange or association or by any insurance company
21 as, in the opinion of the commissioner, to result in
22 confusion or deception.
23 (2) The kind or kinds of insurance to be effected or
24 exchanged.
25 (3) A copy of the form of policy, contract or agreement
26 by which the insurance is to be effected or exchanged.
27 (4) A copy of the form of power of attorney, or other
28 authority of the attorney, under which the insurance is to be
29 effected or exchanged, and which shall provide that the
30 liability of the subscribers, exchanging contracts of
19850H1962B2642 - 189 -
1 indemnity, shall make provision for contingent liability
2 equal to not less than one additional annual premium or
3 deposit charged. If an exchange has a surplus equal to the
4 minimum capital and surplus required of a stock insurance
5 company transacting the same kind or kinds of business, its
6 power of attorney need not provide for contingent liability
7 of subscribers, and the exchange, so long as it maintains the
8 surplus, may issue to its subscribers policies or contracts
9 without contingent liability.
10 (5) The location of each office from which the contracts
11 or agreements are to be issued.
12 (6) A statement that applications have been made for
13 indemnity upon at least 100 separate risks, aggregating not
14 less than $1,500,000, as represented by executed contracts or
15 bona fide applications to become concurrently effective, or,
16 in the case of employees' liability or workmen's compensation
17 insurance, covering a total payroll of not less than
18 $1,500,000.
19 (7) A statement that there is in the possession of the
20 attorney, available for the payment of losses, a sum of not
21 less than $100,000.
22 § 2104. Certificates of attorney.
23 Each attorney shall annually obtain from the commissioner a
24 certificate of authority stating that all the requirements of
25 this chapter have been complied with. Upon the payment of the
26 fees required, the commissioner shall issue the certificate. The
27 commissioner may revoke or suspend any certificate of authority.
28 § 2105. Statements to be filed by attorney.
29 (a) Indemnity.--The attorney shall file with the
30 commissioner his verified statement showing the maximum amount
19850H1962B2642 - 190 -
1 of indemnity upon any single risk. Whenever required by the
2 commissioner, the attorney shall file his verified statement to
3 the effect that he has examined the commercial rating of the
4 subscribers, as shown by the reference book of a commercial
5 agency having at least 100,000 subscribers, and that, from his
6 examination or from other information in his possession, it
7 appears that no subscriber has assumed on any single risk an
8 amount greater than 10% of the net worth of such subscriber.
9 (b) Statement of conditions.--The attorney shall make a
10 report to the commissioner for each calendar year, on or before
11 March 1, showing the financial condition of the office where the
12 contracts are issued, and shall furnish such additional
13 information and reports as the commissioner requires. The
14 attorney shall not be required to furnish the names and
15 addresses of any subscribers, nor the loss ratio of any
16 particular subscriber.
17 § 2106. Examination by commissioner.
18 The business affairs and assets of organizations under this
19 chapter shall be subject to examination by the commissioner.
20 § 2107. Reserves.
21 There shall at all times be maintained as a reserve a sum in
22 cash, or in securities of the character permitted by the law of
23 the state under which the exchange is organized for the
24 investment of the capital and funds of an insurance company,
25 equal to 50% of the aggregate net annual deposits collected and
26 credited to the account of the subscribers on policies having
27 one year or less to run, and pro rata on those for longer
28 periods. As used in this section the term "net annual deposits"
29 shall mean the advance payments of subscriber, after deducting
30 therefrom the amounts specifically provided in the subscribers'
19850H1962B2642 - 191 -
1 agreements for expenses. If the reserves at any time do not
2 amount to $100,000, then there shall be maintained on deposit at
3 the exchange at all times additional funds in cash or such
4 securities which together with the reserves will equal $100,000.
5 In calculating the foregoing reserves, the funds or amounts
6 provided for under section 2103(7) (relating to declarations)
7 shall be included. There shall also be maintained as a claim or
8 loss reserve, cash or such securities, as authorized, sufficient
9 to discharge all liabilities on all outstanding losses arising
10 under policies issued. If at any time the amounts on hand are
11 less than the foregoing requirements, the subscribers or their
12 attorney shall make up the deficiency under penalty of
13 revocation of the license. These advances shall be repaid only
14 out of the surplus funds of the exchange.
15 § 2108. Fees and taxes.
16 The attorney shall pay to the Commonwealth the same fees and
17 taxes as are now required by law to be paid by stock and mutual
18 companies transacting like kinds of business in this
19 Commonwealth. In the payment of taxes, he may deduct from the
20 gross premiums or deposits received during the calendar year,
21 all amounts returned to subscribers or credited to their
22 accounts, other than for losses.
23 § 2109. Penalty.
24 Any attorney who, except for the purpose of applying for a
25 certificate of attorney under section 2104 (relating to
26 certificates of attorney), exchanges any contracts of indemnity
27 of the kind specified in this chapter, or directly or indirectly
28 solicits or negotiates any applications therefor, without first
29 complying with this chapter, commits a misdemeanor of the third
30 degree and, upon conviction, shall be sentenced to pay a fine of
19850H1962B2642 - 192 -
1 not less than $100 nor more than $1,000.
2 CHAPTER 23
3 LLOYDS ASSOCIATIONS
4 Sec.
5 2301. Definition.
6 2302. Authorization.
7 2303. Declarations.
8 2304. Certification to do business.
9 2305. Examination by commissioner.
10 2306. Deposits by alien underwriters.
11 2307. Return of deposits.
12 2308. Additional and substituted underwriters.
13 2309. Information to be furnished to commissioner.
14 2310. Maximum amount of risks.
15 2311. Applicability of other provisions.
16 2312. Penalties.
17 § 2301. Definition.
18 As used in this chapter the term "underwriter" means any
19 individual, partnership or association of individuals which
20 engages in the business of insurance as insurers on the Lloyds
21 plan.
22 § 2302. Authorization.
23 (a) General rule.--Individuals, partnerships or associations
24 of individuals are authorized to engage in the business of
25 insurance as insurers on the Lloyds plan in accordance with this
26 chapter.
27 (b) Authorized classes of insurance.--Underwriters, when
28 authorized under this chapter, may insure the following classes
29 of risks:
30 (1) On dwelling houses, stores and all kinds of
19850H1962B2642 - 193 -
1 buildings and household furniture and other property, against
2 loss or damage, including loss of use or occupancy, by fire,
3 lightning and explosion, except by explosion on risks
4 specified in section 3302(c)(5) (relating to authorized
5 classes of insurance), and by storms, earthquakes, hail,
6 frost, sleet, snow or flood; against loss or damage by water
7 to any goods or premises arising from the breakage, leakage
8 of sprinklers, pumps or other apparatus erected for
9 extinguishing fires and of water pipes; against accidental
10 injury to sprinklers, pumps or other apparatus; against loss
11 or damage caused by the caving in of the surface of the earth
12 above coal mines; against loss or damage caused by
13 bombardment, invasion, insurrection, riot, civil war or
14 commotion, and military or usurped power; and to effect
15 reinsurance of any risk provided for in this paragraph.
16 (2) The risks listed in section 3302(b)(2).
17 (3) The risks listed in section 3302(b)(3).
18 (4) Any form of insurance other than life insurance, not
19 included in this section, if the insurance is not contrary to
20 law and is allied or in harmony with the classes of insurance
21 listed in this section. This insurance shall be transacted
22 only on express license by the commissioner and upon the
23 terms and conditions prescribed by him.
24 § 2303. Declarations.
25 The underwriters shall file with the commissioner a
26 declaration, verified by their duly authorized attorney-in-fact,
27 setting forth:
28 (1) The name or title under which the business is to be
29 conducted, which name shall not be so similar to any existing
30 association of insurers on the Lloyds or inter-insurance plan
19850H1962B2642 - 194 -
1 or insurance corporation as to result in confusion or
2 deception, in the opinion of the commissioner.
3 (2) The location of the principal office at which the
4 business is to be conducted.
5 (3) A copy of the form of power of attorney, agreement
6 or other authority of the attorney-in-fact, setting forth the
7 character of their representatives and their authority and
8 the agreement between the underwriters.
9 (4) Copies of the forms of policy, contracts or
10 agreements under which insurance is to be effected.
11 (5) The names and addresses of all the underwriters
12 proposing to engage in the business.
13 (6) If a foreign association, the designation and
14 appointment of the commissioner for service of legal process.
15 (7) Each kind of insurance to be written.
16 (8) That a fund for the protection of policyholders is
17 in the possession, within the United States, of the attorney-
18 in-fact or a committee for the underwriters and is either in
19 cash or invested as required by the law of the state in which
20 the principal office of the underwriters is located in
21 respect to securities deposited by the insurance corporations
22 authorized to transact similar kinds of insurance. The fund
23 shall be in an amount not less than $100,000 if the
24 applicants desire to be authorized to insure any single class
25 of risk mentioned in section 2302(b)(1), (2) or (3) (relating
26 to authorization), respectively, or in section 2302(b)(1) and
27 (3) only or section 2302(b)(2) and (3) only. The fund shall
28 be in an amount not less than $200,000 if the applicants
29 desire to be authorized to insure all the classes of risk
30 mentioned in section 2302(b)(1), (2) and (3) or those classes
19850H1962B2642 - 195 -
1 mentioned in section 2302(b)(1) and (2) only.
2 (9) The number of underwriters, which shall not be less
3 than 25, and that each underwriter is worth, in his own
4 right, not less than $20,000 over and above all his debts and
5 liabilities.
6 (10) A statement showing a list of all cash and invested
7 assets owned by the associated underwriters as such, and
8 their estimated value.
9 § 2304. Certification to do business.
10 Upon the filing of the documents specified in section 2303
11 (relating to declarations), the commissioner shall examine them,
12 and, if it appears that all the statements made in the
13 declaration are true and that the rights of the policyholders
14 will be protected thereunder, he may issue a certificate of
15 authority to the underwriters, under the name chosen and
16 approved, stating that they are authorized to transact the
17 business of insurance specified in the declaration. The
18 certificate of authority shall be renewed annually. An
19 underwriter, attorney-in-fact, agent or other person shall not
20 transact the business of insurance in this Commonwealth for the
21 underwriters until the certificate has been issued, nor during
22 its suspension or revocation.
23 § 2305. Examination by commissioner.
24 Prior to the issuance of the certificate of authority, the
25 commissioner may cause an examination to be made of the affairs
26 and assets of the underwriters applying for the certificate.
27 § 2306. Deposits by alien underwriters.
28 If any of the underwriters applying for a certificate of
29 authority is not a citizen of the United States, each alien
30 underwriter shall, at the time of the making of the application
19850H1962B2642 - 196 -
1 for certificate of authority, deposit with the commissioner
2 $5,000 in cash or in the kinds of securities required for the
3 investment of the capital of insurance corporations authorized
4 to do similar kinds of insurance business in this Commonwealth,
5 or in the kinds of securities approved by him. The provisions of
6 this section as to deposits shall not apply if the alien
7 underwriter:
8 (1) is one of an association of underwriters having on
9 deposit with the insurance department of any state, or in the
10 hands of a bank or trust company as trustee, a cash deposit
11 or approved securities, worth not less than $100,000, held in
12 trust for the benefit of all their policyholders in the
13 United States; or
14 (2) is one of an association of underwriters 90% of whom
15 are at all times citizens of the United States and who have
16 complied with all other provisions of this chapter.
17 § 2307. Return of deposits.
18 After the conditions of any deposits made under this chapter
19 have been fulfilled and the certificate of authority granted to
20 the underwriters has been canceled or they have voluntarily
21 withdrawn from and have ceased doing business in this
22 Commonwealth, the commissioner shall return to the underwriters,
23 or their authorized representative for this purpose specifically
24 designated by them or their principal attorney-in-fact, all
25 securities and cash so deposited in this Commonwealth.
26 § 2308. Additional and substituted underwriters.
27 Whenever underwriters applying for certificates of authority
28 under this chapter, after the issue of the certificate, are
29 joined by additional or substituted underwriters, the additional
30 or substituted underwriters shall comply with the provisions of
19850H1962B2642 - 197 -
1 this chapter and shall be bound by the documents on file with
2 the commissioner concerning such authorized underwriters, to the
3 same extent as though they had been original applicants for the
4 certificates of authority.
5 § 2309. Information to be furnished to commissioner.
6 Any association of underwriters authorized under this chapter
7 shall from time to time furnish to the commissioner, under oath
8 of their attorney-in-fact, such information as the commissioner
9 requires respecting the conduct of their affairs, changes in the
10 name under which the business is done, the establishment of
11 branch offices and their location and any change in the
12 membership of the underwriters and their attorney-in-fact,
13 including any amendment to the power of attorney, agreements or
14 articles of association of underwriters.
15 § 2310. Maximum amount of risks.
16 An association of underwriters authorized to do business in
17 this Commonwealth under this chapter shall not expose themselves
18 to loss on any one risk in an amount in excess of 20% of their
19 cash and invested assets, including therein the underwriting
20 liability of the individual underwriters, unless any excess is
21 promptly reinsured by the underwriters.
22 § 2311. Applicability of other provisions.
23 (a) General rule.--All associations of underwriters
24 authorized under this chapter and their representatives shall be
25 subject to the same supervision by, shall be required to make
26 the same reports to the commissioner and shall pay the same
27 taxes and license fees as are required of foreign insurance
28 companies and their representatives transacting the same or
29 similar kinds of insurance in this Commonwealth.
30 (b) Inter-insurers or reciprocal underwriters.--This chapter
19850H1962B2642 - 198 -
1 does not apply to inter-insurers or reciprocal underwriters.
2 § 2312. Penalties.
3 (a) Certificate of authority.--Upon violation of any
4 provision of this chapter, the commissioner may revoke or
5 suspend any certificate of authority issued under this chapter.
6 (b) Criminal penalty.--Any person who, as principal,
7 attorney, agent, broker or other representatives, engages in the
8 business contemplated by this chapter, or any variety or part
9 thereof, without complying with the requirements thereof, or who
10 violates any provision of this chapter commits a misdemeanor of
11 the third degree and, upon conviction, shall be sentenced to pay
12 a fine not exceeding $500.
1 PART III
2 ORGANIZATION OF INSURANCE ENTITIES
3 Chapter
4 31. General Provisions
5 33. Incorporation of Insurance Companies
6 35. Corporate Operations
7 37. International Operations
8 39. Suspension of Business and Dissolution
9 41. Beneficial Societies
10 43. Fraternal Benefit Society Code of 1972
11 45. Fraternal Benefit Society Code of 1977
12 47. Mutual Companies
13 CHAPTER 31
14 GENERAL PROVISIONS
15 Sec.
16 3101. Scope of part.
17 3102. Acceptance of part.
19850H1962B2642 - 199 -
1 3103. Exemption from part.
2 3104. Power of General Assembly regarding charters.
3 3105. Persons prohibited from insurance business.
4 3106. Judicial proceedings.
5 § 3101. Scope of part.
6 (a) Applicability.--Except as provided in this part, this
7 part applies to all of the following:
8 (1) Domestic insurance companies incorporated under the
9 provisions of this part.
10 (2) Domestic insurance companies incorporated under
11 general or special laws since October 13, 1857.
12 (3) Domestic insurance corporations which have accepted
13 the provisions of the Constitution of Pennsylvania and the
14 general insurance laws enacted since October 13, 1857.
15 (4) Domestic insurance corporations incorporated prior
16 to October 13, 1857, which,, by the terms of their charters
17 or the statutes under which they were incorporated hold
18 charters subject to alteration or revocation.
19 (5) Other domestic insurance corporations incorporated
20 prior to October 13, 1857, which accept the provisions of
21 this part.
22 (6) Foreign insurance companies doing business in this
23 Commonwealth.
24 (7) Domestic and foreign associations and exchanges
25 doing insurance business in this Commonwealth.
26 (b) Authority.--All insurance companies to which this part
27 applies and which have the required capital and reserve may
28 transact any one or more of the classes of insurance authorized
29 by section 3302 (relating to authorized classes of insurance) in
30 the same manner and to the same extent as insurance companies
19850H1962B2642 - 200 -
1 incorporated under the provisions of this part.
2 (c) Exemptions.--An insurance company created before May 21,
3 1921, to which this part applies, shall not be deprived of any
4 right which it enjoys under its charter to engage in any
5 business other than insurance. This title shall not interfere
6 with the charter provisions or operations of any domestic mutual
7 fire insurance company organized before May 21, 1921, under any
8 general or special law of this Commonwealth.
9 (d) Business Corporation Law.--The act of May 5, 1933
10 (P.L.364, No.106), known as the Business Corporation Law, does
11 not apply to corporations organized under Chapter 33 (relating
12 to incorporation of insurance companies), except for section
13 1014B of that act.
14 § 3102. Acceptance of part.
15 Any insurance company organized before May 21, 1921, under
16 any general or special law of this Commonwealth to transact any
17 of the classes of insurance authorized in this part and to which
18 this part does not apply may transact any one or more of the
19 classes of insurance authorized by section 3302 (relating to
20 authorized classes of insurance) and become subject to the
21 provisions of this part, by providing the capital and reserve
22 required for such companies organized under this title and by
23 filing with the commissioner a resolution of the board of
24 directors or trustees, approved by the stockholders or members
25 at a meeting specially called for that purpose, accepting the
26 provisions of the Constitution and of this part, and agreeing to
27 be governed thereby as fully as though organized hereunder. The
28 charters of all insurance companies accepting the provisions of
29 this part shall, after such acceptance, be repealed and of no
30 effect insofar as these are inconsistent with this part. Any
19850H1962B2642 - 201 -
1 domestic mutual fire company or association may elect to become
2 subject to the provisions of this part, in lieu of any acts
3 previously governing the company or association, by resolution
4 of its board of directors, duly approved by a majority of the
5 members present at any annual meeting or special meeting called
6 for that purpose, of which all members shall be given at least
7 two weeks notice by mail. These resolutions and the vote
8 approving them certified to by the president and secretary shall
9 be filed with the commissioner, and, when approved by him, the
10 company shall become subject to the provisions of this part.
11 § 3103. Exemption from part.
12 Except for Chapters 41 (relating to beneficial societies), 43
13 (relating to Fraternal Benefit Society Code of 1972) and 45
14 (relating to Fraternal Benefit Society Code of 1977), this part
15 does not apply to assessment associations or to fraternal
16 benefit societies, orders or associations having a lodge system
17 with ritualistic form of work and representative form of
18 government; or to beneficial and relief associations formed by
19 churches or societies, partnerships, associations or
20 corporations, with or without ritualistic form of work, the
21 privileges and membership in which are confined to the members
22 of those churches or societies, and to members and employees of
23 those partnerships, associations or corporations.
24 § 3104. Power of General Assembly regarding charters.
25 The General Assembly may alter, revoke or annul any charter
26 granted or accepted under this part whenever, in the opinion of
27 the General Assembly, it may be injurious to the citizens of
28 this Commonwealth, in such manner that no injustice shall be
29 done to the incorporators or their successors.
30 § 3105. Persons prohibited from insurance business.
19850H1962B2642 - 202 -
1 (a) General rule.--Except as provided in this part, the
2 doing of any insurance business in this Commonwealth as
3 prescribed in this part, for insurance companies by any private
4 individual, association or partnership is prohibited.
5 (b) Enforcement--Any person who solicits or obtains in this
6 Commonwealth applications for insurance by any such private
7 individual, association or partnership, in violation of this
8 part shall be liable to pay $100 for the use of the Commonwealth
9 for every application obtained. This penalty shall be sued for
10 and recovered by the Attorney General or district attorney of
11 the proper county, either by civil action or by criminal
12 prosecution. Any person who has paid to any agent of an
13 unauthorized individual, association or partnership any premiums
14 for insurance granted or to be granted may recover them by an
15 action at law from such agent or from the person, association or
16 partnership for which he acted.
17 (c) Exemptions.--This section does not prohibit the doing of
18 insurance business by Lloyds associations or the exchange of
19 inter-insurance or reciprocal contracts of insurance authorized
20 by Chapter 21 (relating to reciprocal and inter-insurance
21 exchanges), nor does this part prohibit anyone from becoming or
22 being accepted as personal surety or guarantor. This section
23 does not apply to title insurance companies or to the business
24 of title insurance.
25 § 3106. Judicial proceedings.
26 Any person transacting business under this title may maintain
27 or defend judicial proceedings.
28 CHAPTER 33
29 INCORPORATION OF INSURANCE COMPANIES
30 Subchapter
19850H1962B2642 - 203 -
1 A. Formation of Corporations
2 B. Promotion
3 C. Authorization
4 D. Valuation of Securities
5 E. Conversion of Mutual Companies to Corporations
6 SUBCHAPTER A
7 FORMATION OF CORPORATIONS
8 Sec.
9 3301. Classes of insurance companies.
10 3302. Authorized classes of insurance.
11 3303. Articles of agreement.
12 3304. Name of company.
13 3305. Capital stock.
14 3306. Minimum capital stock and financial requirements.
15 3307. Officers and directors.
16 3308. Subscriptions.
17 § 3301. Classes of insurance companies.
18 Subject to this title, insurance companies of any of the
19 following classes may be incorporated:
20 (1) Stock life insurance companies.
21 (2) Mutual life insurance companies.
22 (3) Stock fire, stock marine, and stock fire and marine
23 insurance companies.
24 (4) Stock casualty insurance companies.
25 (5) Mutual insurance companies of any kind other than
26 mutual life insurance companies.
27 § 3302. Authorized classes of insurance.
28 (a) Life insurance companies.--Stock or mutual life
29 insurance companies may be incorporated for any or all of the
30 following purposes:
19850H1962B2642 - 204 -
1 (1) To insure the lives of persons and every insurance
2 appertaining thereto; to grant and dispose of annuities,
3 variable life insurance contracts and variable annuity
4 contracts under which values or payments or both vary in
5 relation to the investment experience of the issuer or a
6 separate account or accounts maintained by the issuer; and to
7 insure against the risks listed in paragraph (2) when written
8 as a part of a policy of life insurance.
9 (2) To insure against personal injury, disability or
10 death resulting from traveling or general accidents and
11 against disability resulting from sickness and every
12 insurance appertaining thereto, but no life insurance company
13 may be incorporated for the purposes mentioned in this
14 paragraph unless it is also incorporated for the purposes
15 mentioned in paragraph (1).
16 (b) Fire and marine insurance companies.--Stock fire
17 insurance companies may be incorporated for any or all of the
18 purposes mentioned in paragraphs (1) and (2); stock marine
19 insurance companies may be incorporated for any or all of the
20 purposes mentioned in paragraphs (2) and (3); and stock fire and
21 marine insurance companies may be incorporated for any or all of
22 the purposes mentioned in paragraphs (1), (2) and (3). The
23 permissible subjects and risks under this subsection are:
24 (1) Insuring dwelling houses, stores and all kinds of
25 buildings and household furniture and other property against
26 loss or damage, including loss of use or occupancy, by any or
27 all risks, and effecting reinsurance of any such risk.
28 (2) Insuring vessels, boats, cargoes, goods, personal
29 property, merchandise, freight and other property, against
30 loss or damage by all or any of the risks of lake, river,
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1 canal and inland navigation and transportation, including all
2 personal property floater risks, upon automobiles or
3 aircraft, whether stationary, in operation or in transit,
4 against loss or damage by fire, explosion, transportation,
5 collision, burglary, larceny or theft, not including, in any
6 case, insurances against loss by reason of bodily injury; and
7 effecting reinsurance of any such risk.
8 (3) Insuring vessels, freight, goods, wares,
9 merchandise, specie, bullion, jewels, profits, commissions,
10 bank notes, bills of exchange and other evidence of debt,
11 bottomry and respondentia interests; providing insurance upon
12 or connected with marine risks and risks of transportation
13 and navigation; and effecting reinsurance of any such risk.
14 (c) Casualty insurance.--Stock casualty insurance companies
15 may be incorporated for any or all of the following purposes:
16 (1) To guarantee the fidelity of persons holding places
17 of public or private trust; to guarantee the performance of
18 contracts other than insurance policies; to guarantee the
19 performance of insurance contracts where surety bonds are
20 accepted from insurance companies by states or municipalities
21 in lieu of actual deposits; to execute or guarantee bonds and
22 undertakings required or permitted in all actions or
23 proceedings or permitted by law; and to indemnify banks,
24 bankers, brokers, financial associations or financial
25 corporations against the loss of any bills of exchange,
26 notes, drafts, acceptances of drafts, bonds, securities,
27 evidences of debt, deeds, mortgages, warehouse receipts,
28 bills of lading, documents, currency, money, gold, platinum,
29 silver and other precious metals and articles made therefrom;
30 jewelry, watches, necklaces, bracelets, gems and precious and
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1 semi-precious stones, and also against loss resulting from
2 damage, except by fire, to the insured's premises,
3 furnishings, fixtures, equipment, safes and vaults therein,
4 caused by burglary, robbery, theft or larceny, or attempt
5 thereat, except against loss caused by marine risks or risks
6 of transportation or navigation, but indemnification against
7 the loss of such property may include loss occurring during
8 transportation by an armored motor vehicle accompanied by one
9 or more armed guards.
10 (2) To insure against injury, disability or death
11 resulting from traveling or general accident, and against
12 disability resulting from sickness, and every insurance
13 appertaining thereto, including a funeral benefit to an
14 amount not exceeding $100.
15 (3) To insure against loss of and damage to glass,
16 including lettering and ornamentation thereon, and the frame
17 in which the glass is set, resulting from breakage of the
18 insured glass.
19 (4) To insure against loss or damage resulting from
20 accident to, or injury, fatal or nonfatal, suffered by any
21 person for which the person insured is liable; to insure
22 against medical, hospital, surgical and funeral expenses
23 incurred by or on behalf of the persons accidentally injured,
24 including the person insured; to insure against loss or
25 damage to property caused by horses, or by any vehicle drawn
26 by animal power, for which loss or damage the person insured
27 is liable; and to insure against loss or damage to property,
28 for which loss or damage the person insured is liable, but
29 not including any kind of property damage insurance specified
30 in other paragraphs. This paragraph does not apply to any
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1 kind of insurance against loss or damage resulting from the
2 ownership, maintenance or use of a motor vehicle. This
3 paragraph does not apply to workmen's compensation insurance
4 against loss or damage resulting from accident to, or injury,
5 fatal or nonfatal, suffered by an employee for which the
6 person insured is liable or against medical, hospital,
7 surgical and funeral expenses incurred by or on behalf of the
8 employe accidentally injured as provided for in paragraph
9 (14).
10 (5) To insure steam boilers, pipes and machinery
11 connected therewith or operated thereby, against loss caused
12 by explosion or accident, against loss of or damage to life,
13 person or property resulting therefrom and against loss of
14 use and occupancy caused thereby; and to make inspection of,
15 and issue certificates of inspection upon, such boilers,
16 pipes and machinery.
17 (6) To insure against loss or damage by burglary,
18 larceny, theft, robbery, forgery, fraud, vandalism or
19 malicious mischief; to insure against loss or damage to
20 moneys, securities, currencies, scrip, coins, bullion, bonds,
21 notes, drafts, acceptance drafts, bills of exchange and other
22 valuable papers or documents, except while in the custody or
23 possession of, and being transported by, a carrier for hire
24 or in the mail; and to insure against loss or damage to
25 automobiles and aircraft by burglary, larceny, theft,
26 vandalism or malicious mischief, confiscation or wrongful
27 conversion, disposal or concealment, whether held under
28 conditional sale contract or subject to a security interest
29 or otherwise.
30 (7) To carry on the business of credit insurance or
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1 guaranty, either by agreeing to purchase uncollectible debts
2 or otherwise; and to insure against loss or damage from the
3 failure of persons indebted to the insured to meet their
4 liabilities.
5 (8) To insure any goods or premises against loss or
6 damage by water or other fluid, caused by the breakage or
7 leakage of sprinklers, pumps or other apparatus erected for
8 extinguishing fires, or of other conduits or containers, or
9 of water pipes, or caused by casual water entering through
10 leaks or openings in buildings; and to insure them against
11 accidental injury from causes other than fire or lightning to
12 sprinklers, pumps, water pipes, conduits, containers or other
13 apparatus; and to insure them against damage from use or
14 occupancy of premises by reason of such loss or damage.
15 (9) To insure against loss or damage to elevators or
16 other property, except loss or damage by fire, caused by the
17 maintenance, operation or use of elevators and machinery; and
18 to insure against legal liability for damage to property
19 resulting from such operation, maintenance or use of
20 elevators.
21 (10) To insure livestock.
22 (11) To insure against loss or damage to motor vehicles
23 or aircraft, except loss or damage by fire or while being
24 transported in any conveyance by land or water, including
25 loss by legal liability for damage to property resulting from
26 the maintenance and use of motor vehicles or aircraft; to
27 insure against loss or damage resulting from accident to, or
28 injury, fatal or nonfatal, suffered by another person, for
29 which the person insured is liable resulting from the
30 ownership, maintenance or use of a motor vehicle; and to
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1 insure against medical, hospital, surgical and funeral
2 expenses incurred by or on behalf of the persons accidentally
3 injured as a result of the ownership, maintenance or use of a
4 motor vehicle, including the person insured, and, in the case
5 of motor vehicle liability insurance, including also an
6 obligation of the insurer to pay disability benefits to
7 injured persons and death benefits to dependents,
8 beneficiaries or personal representatives of persons who are
9 killed, irrespective of the legal liability of the insured
10 when such insurance is issued with and supplemental to such
11 liability insurance.
12 (12) To insure against loss or damage to machinery,
13 pumps, transporting, hoisting and ventilating apparatus, and
14 equipment of mines while located underground, and loss or
15 damage to underground passageways, gangways, airways, drifts,
16 slopes, shafts, overcasts and stoppings in the mines. An
17 authorized casualty company shall not expose itself to any
18 loss or hazard on any one risk authorized by this paragraph
19 in an amount exceeding 10% of its capital and surplus unless
20 it is protected in excess of that amount by reinsurance.
21 (13) To insure by means of an all-risk type of policy,
22 commonly known as the "personal property floater policy,"
23 against all risks of loss of or damage to personal property
24 owned by any individual other than merchandise, motor
25 vehicles, aircraft, watercraft (except canoes, rowboats,
26 sailboats less than 21 feet in length and outboard motor
27 boats) or personal property pertaining to the business, trade
28 or profession of the insured, except professional books,
29 instruments and other professional equipment owned by the
30 insured.
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1 (14) To insure against loss or damage resulting from
2 accident to, or injury, fatal or nonfatal, suffered by an
3 employee for which the person insured is liable and to insure
4 against medical, hospital, surgical and funeral expenses
5 incurred by or on behalf of the employee accidentally
6 injured, including the person insured.
7 (d) Mutual companies.--Mutual insurance companies of any
8 kind, other than life insurance companies, may be incorporated
9 to make contracts of insurance, or to reinsure and accept
10 reinsurance, for any and all kinds of insurance, other than life
11 insurance, which are not prohibited by statute or at common law
12 from being the subject of insurance, but no such mutual company
13 may transact any kind of insurance other than those which may be
14 transacted by a corporation writing the same kinds of insurance.
15 A mutual company possessing charter powers set forth in
16 subsection (b)(2) or (c)(11) shall not write assessable bodily
17 injury and property damage liability insurance policies upon
18 automobiles or motor vehicles, except insurance coverage
19 providing for collision damage or other direct loss or damage to
20 the insured automobile or motor vehicle; or a mutual company
21 possessing the charter powers set forth in subsection (c)(14)
22 shall not write assessable workmen's compensation policies. All
23 assessable policies shall have the words "This is an assessable
24 policy" printed prominently on the backer or policy panel, as
25 well as on the face of the policy in letters not less than
26 sixteen point in size. An assessable policy upon automobiles and
27 motor vehicles shall not be written, issued, reissued or
28 renewed, except insurance coverage providing for collision
29 damage or other direct loss or damage to the insured automobile
30 or motor vehicle.
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1 (e) Other forms of insurance.--Domestic stock and mutual
2 insurance companies, other than life, and, if their charters
3 permit, foreign or alien companies may transact any form of
4 insurance not included in this section if the insurance is not
5 contrary to law and is allied or in harmony with the classes of
6 insurance provided in this section. This additional insurance
7 shall be transacted only on express license by the commissioner
8 and upon such terms and conditions as are from time to time
9 prescribed by him.
10 (f) Fire, marine and casualty insurance.--Domestic stock and
11 mutual insurance companies, other than life or title, and, if
12 their charters permit, foreign or alien companies may transact
13 any or all of the kinds of insurance included in subsections (b)
14 and (c) upon compliance with all of the financial and other
15 requirements prescribed by the law of this Commonwealth for
16 fire, marine, fire and marine, and casualty insurance companies
17 transacting those kinds of insurance. Stock fire, stock marine,
18 stock fire and marine, and stock casualty insurance companies
19 may be incorporated for any or all of the purposes mentioned in
20 subsections (b) and (c).
21 § 3303. Articles of agreement.
22 Any ten or more individuals of full age and either sex,
23 married or single, at least two-thirds of whom are citizens of
24 the United States or its territories or possessions, may
25 associate in accordance with this part and form a corporation of
26 any of the classes enumerated in section 3301 (relating to
27 classes of insurance companies). The persons shall associate by
28 written articles of agreement, which shall specify:
29 (1) The name by which the company shall be known.
30 (2) The class of insurance for the transaction of which
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1 it is constituted.
2 (3) The plan or principle upon which the business is to
3 be conducted.
4 (4) The place in which it is to be established or
5 located.
6 (5) In the case of a stock company, the amount of its
7 capital.
8 (6) The general objects of the company.
9 (7) The proposed duration of the company, which may be
10 limited or perpetual.
11 (8) The powers it proposes to have and exercise.
12 § 3304. Name of company.
13 The subscribers to the articles of agreement of any company
14 to be incorporated under this part may adopt any name not
15 previously used by any existing company, but the name must
16 clearly designate the object and purpose of the company. In the
17 case of a mutual company, the word "mutual" shall appear in its
18 name. The commissioner may prohibit the use of any name when, in
19 his judgment, it too closely resembles that of any existing
20 company or is likely to confuse or mislead the public.
21 § 3305. Capital stock.
22 (a) Par value.--The capital stock of all stock insurance
23 companies shall be divided into shares with par value of not
24 less than $1 a share.
25 (b) Payment of subscriptions.--All payments on accounts of
26 capital stock in any stock insurance company, except for stock
27 issued in connection with an authorized merger or consolidation
28 or as consideration for the purchase or acquisition of
29 authorized investments or as a stock dividend, shall be made in
30 lawful money. A note or obligation given by a stockholder,
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1 whether secured by pledge or otherwise, shall not be considered
2 as a payment of any part of the capital stock. Ten percent of
3 the total subscription price shall be paid on each share at the
4 time of subscribing, and the balance on such shares shall be
5 paid at such times as the company may direct, but full payments
6 on all shares shall be made within a period of nine months from
7 the date of organization.
8 (c) Forfeitures.--Any stock insurance company may prescribe
9 rules with regard to the forfeiture of partial payments on
10 subscriptions, which rules shall be binding upon subscribers if
11 made known at the time of the subscription.
12 § 3306. Minimum capital stock and financial requirements.
13 (a) Life insurance companies.--Stock life insurance
14 companies organized under section 3302(a)(1) (relating to
15 authorized classes of insurance) shall have a paid-up capital
16 stock of at least $1,000,000. Stock life insurance companies
17 organized under this part for all of the purposes mentioned in
18 section 3302(a) shall have a paid-up capital stock of at least
19 $1,100,000. Every such company shall, in addition thereto, have
20 a surplus paid in at least equal to 50% of the subscribed
21 capital stock.
22 (b) Fire and marine insurance companies.--Stock fire, stock
23 marine and stock fire and marine insurance companies organized
24 under this part for any of the purposes mentioned in section
25 3302(b)(1) or (2) shall have paid-up capital stock of at least
26 $100,000; if organized for all the purposes mentioned in section
27 3302(b)(1) and (2) or in section 3302(b)(3), at least $200,000;
28 and, if organized for all of the purposes mentioned in section
29 3302(b)(1), (2) and (3), at least $400,000. Every such company
30 shall, in addition thereto, have a surplus paid in at least
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1 equal to 50% of the subscribed capital stock.
2 (c) Casualty insurance companies.--
3 (1) Stock casualty companies organized under this part
4 for any of the purposes of insurance mentioned in section
5 3302(c) shall have a paid-up capital stock of at least
6 $100,000, except:
7 (i) Companies organized for the purpose of credit
8 insurance, which shall have a paid-up capital stock of at
9 least $200,000.
10 (ii) Companies organized for the purposes mentioned
11 in section 3302(c)(11), which shall have a paid-up
12 capital stock of at least $500,000.
13 (iii) Companies organized for the purpose of
14 workmen's compensation insurance as provided for in
15 section 3302(c)(14), which shall have a paid-up capital
16 stock of at least $750,000.
17 (iv) Companies organized to guarantee the fidelity
18 of persons and contracts of suretyship, which shall have
19 a paid-up capital stock of at least $250,000.
20 (2) Stock casualty companies organized under this part
21 may undertake two or more classes of insurance mentioned in
22 section 3302(c) by providing at least $50,000 additional
23 paid-up capital stock for each additional class of insurance,
24 except as follows:
25 (i) If credit or fidelity and surety insurance is
26 added to any other line or lines, in which case the
27 additional paid-up capital stock for credit insurance
28 shall be at least $100,000, and the additional paid-up
29 capital stock for fidelity and surety insurance shall be
30 at least $200,000.
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1 (ii) If insurance for the purposes mentioned in
2 section 3302(c)(11) is added to any other line or lines,
3 in which case the additional paid-up capital stock shall
4 be at least $500,000.
5 (iii) If workmen's compensation insurance as
6 provided for in section 3302(c)(14) is added to any other
7 line or lines, in which case the additional paid-up
8 capital stock shall be at least $750,000.
9 (3) Any such stock casualty company with a paid-up
10 capital stock of at least $300,000 may transact all of the
11 classes of insurance mentioned in section 3302(c) except
12 credit, livestock and fidelity and surety insurance, and
13 except insurance for the purposes mentioned in section
14 3302(c)(11) and except workmen's compensation insurance as
15 provided for in section 3302(c)(14). A company with a paid up
16 capital stock of at least $1,950,000 may transact all of the
17 classes of insurance mentioned in section 3302(c).
18 (4) Every such company shall, in addition to the paid-up
19 capital stock required under this subsection, have a surplus
20 paid in at least equal to 50% of the subscribed capital
21 stock.
22 (d) Mutual companies generally.--Companies organized under
23 this part to insure lives on the mutual plan must have
24 applications for insurance, in the amount of at least
25 $1,000,000, by not less than 400 individuals. Companies
26 organized under this part to insure lives on the mutual plan
27 shall also have a guarantee capital before commencing business
28 of at least $500,000 and shall maintain unimpaired a
29 policyholders' surplus of at least $250,000 out of guarantee
30 capital, surplus or any combination thereof.
19850H1962B2642 - 216 -
1 (e) Certain mutual companies.--Mutual companies, other than
2 mutual life companies and title insurance companies, organized
3 under this part, and mutual companies which determine to add a
4 line or lines of insurance business shall comply with the
5 following conditions:
6 (1) The company shall hold bona fide applications for at
7 least 20 policies, to be issued promptly and simultaneously
8 to at least 20 policyholders or members upon not less than
9 200 separate risks, each within the maximum single risk
10 described in this paragraph upon the granting of the
11 certificate of authority to do business. The maximum single
12 risk shall not exceed three times the average risk or 1% of
13 the total insurance applied for, whichever is greater.
14 (2) It shall have collected at least an annual cash
15 premium upon each of such applications, which shall be held
16 in cash or securities in which such insurance companies are
17 authorized to invest. In the case of companies organized for
18 any of the purposes mentioned in section 3302(b)(1), (2) or
19 (3), the cash premiums, together with any amounts advanced
20 under section 4710 (relating to loans to companies), shall be
21 at least $25,000 for the purpose mentioned in each paragraph
22 of section 3302(b). If organized for all of the purposes
23 mentioned in section 3302(b)(1), (2) and (3), the cash
24 premiums, together with any amounts advanced under section
25 4710, shall be at least $50,000. In the case of companies
26 organized for any one of the purposes mentioned in section
27 3302(c), except paragraphs (1), (4), (11) and (14), the cash
28 premiums collected, together with any amounts advanced under
29 section 4710, shall be at least $10,000 for the purpose
30 mentioned in each paragraph of section 3302(c). In the case
19850H1962B2642 - 217 -
1 of companies authorized to issue nonassessable policies of
2 insurance for the purposes mentioned in section 3302(c)(11)
3 or (14), the cash premiums collected, together with any
4 amounts advanced under section 4710, shall be $750,000. For
5 the purpose mentioned in section 3302(c)(1) or (4) the cash
6 premiums collected, together with any amounts advanced under
7 section 4710, shall be at least $25,000. A company shall not
8 be organized for any of the purposes mentioned in section
9 3302(c) unless the cash premiums collected, together with the
10 amounts advanced under section 4710, are at least $50,000;
11 nor shall a company be organized for all of the purposes
12 mentioned in section 3302(c), except paragraph (11) or (14),
13 unless the cash premiums collected together with the amounts
14 advanced under section 4710 are at least $350,000.
15 (3) In the case of companies hereafter organized under
16 this part for the purposes mentioned in section 3302(b) and
17 (c), the company shall meet the requirements of paragraphs
18 (1) and (2) of this subsection, and the cash premiums
19 collected, together with any amounts advanced under section
20 4710, shall be at least the aggregate of the sums required
21 under this paragraph for the purposes for which the company
22 is to be incorporated.
23 (4) For the purpose of transacting employers' liability
24 and workmen's compensation insurance, the application shall
25 cover not less than 5,000 employees, and each employee shall
26 be considered a separate risk for determining the maximum
27 single risk.
28 (5) A company writing nonassessable policies shall
29 maintain unimpaired so much of its surplus as is equal to the
30 minimum capital required for stock companies authorized to
19850H1962B2642 - 218 -
1 transact the same class or classes of insurance. A company
2 writing assessable policies shall maintain unimpaired 50% of
3 its required surplus.
4 (f) Fire, marine and casualty companies.--A stock fire,
5 stock marine, stock fire and marine or stock casualty company,
6 organized under this part for any or all of the purposes
7 mentioned in both section 3302(b) and (c), shall have paid-up
8 capital and paid-in surplus of not less than the aggregate
9 amount of paid-up capital and paid-in surplus required for such
10 purpose or purposes of a stock fire, stock marine and stock fire
11 and marine insurance company in subsection (b) and of a stock
12 casualty insurance company in subsection (c).
13 § 3307. Officers and directors.
14 The subscribers to the articles of agreement shall choose
15 from their number a president, a secretary and a treasurer. The
16 subscribers shall also choose from their number the number of
17 directors or trustees they deem advisable, but not less than
18 seven. Any person chosen, elected or appointed as director,
19 trustee, president, secretary or treasurer by the subscribers
20 shall continue in office unless the commissioner, after such
21 investigation as he deems proper, determines that his
22 responsibility, character and general fitness for the business
23 are not such as to command the confidence of the public and to
24 warrant the belief that the business of the company will be
25 honestly and efficiently conducted in accordance with law. The
26 officers and directors so chosen shall continue in office until
27 the first annual meeting of the stockholders or, in the case of
28 a mutual company, of the members, and until their successors are
29 duly chosen and qualified. Any adjudication by the commissioner
30 under this section shall be subject to Title 2 (relating to
19850H1962B2642 - 219 -
1 administrative law and procedure).
2 § 3308. Subscriptions.
3 (a) Stock companies.--In any case where a stock insurance
4 company is to be organized, the subscribers shall open books for
5 the subscription to stock in the company at such times and
6 places as they deem convenient and proper and shall keep them
7 open until the full amount of capital stock specified in the
8 articles of agreement is subscribed.
9 (b) Mutual companies.--In any case where any mutual
10 insurance company is to be organized, the subscribers to the
11 articles of agreement shall open books to receive applications
12 for insurance at such times and places as they shall deem
13 convenient and proper and shall keep them open until
14 applications for insurance have been obtained in sufficient
15 number and amount to comply with the requirements of this title.
16 In the case of mutual life insurance companies, the subscribers
17 shall also, in the same manner as in the case of a stock
18 company, open books to receive subscriptions to the guarantee
19 capital as provided for in this title.
20 SUBCHAPTER B
21 PROMOTION
22 Sec.
23 3321. Definitions.
24 3322. Prohibited acts.
25 3323. Limitation on promotional expenses.
26 3324. Form of application or contract.
27 3325. Depositories.
28 3326. Disclosure of interest.
29 3327. Prohibited terms.
30 3328. Advertisements and prospectuses.
19850H1962B2642 - 220 -
1 3329. Remedies.
2 3330. Criminal penalties.
3 § 3321. Definitions.
4 The following words and phrases when used in this subchapter
5 shall have the meanings given to them in this section unless the
6 context clearly indicates otherwise:
7 "Insurance corporation." A corporation organized to transact
8 the business of insurance or for the principal purpose of
9 holding and dealing in the stocks and securities of such a
10 corporation.
11 "Stock." Bonds and any other evidence of indebtedness or of
12 interest in the profits of any insurance corporation.
13 § 3322. Prohibited acts.
14 A person shall not as principal or agent, directly or
15 indirectly, for the purpose of promoting or organizing any
16 insurance corporation to be organized in or outside this
17 Commonwealth, or of promoting the sale of stock of such a
18 corporation after organization, sell, or agree or attempt to
19 sell, or secure subscriptions or applications for any stock in
20 the insurance corporation without complying in all respects with
21 this subchapter.
22 § 3323. Limitation on promotional expenses.
23 The application, subscription or sale contract shall be in
24 writing and shall contain a provision in the following language:
25 "No sum shall be used for commission, promotion and organization
26 expenses, on account of any share of stock in this corporation,
27 in excess of 10% of the amount actually paid upon separate
28 subscriptions for the stock. The remainder of these payments
29 shall be deposited or invested as authorized by law governing
30 such insurance corporation and shall be held by the organizers
19850H1962B2642 - 221 -
1 or trustees, as the case may be, and the directors and officers
2 of the corporation after organization, as bailees for the
3 subscriber, to be used only in the conduct of the business of
4 insurance by the corporation after having been licensed therefor
5 by proper authority."
6 § 3324. Form of application or contract.
7 The application or the subscription contract shall contain a
8 statement giving:
9 (1) The names of the organizers or trustees, as the case
10 may be, and their residence.
11 (2) The par value of the shares, and the prices at which
12 shares shall be sold.
13 (3) The number of shares at each price.
14 (4) The total number of shares.
15 (5) The percentage which may be used for commission,
16 promotion or organization expenses, which together shall not
17 exceed 10% of the amount actually paid upon separate
18 subscriptions for the stock.
19 § 3325. Depositories.
20 Funds and securities held by organizers, trustees, directors
21 or officers as bailees shall be deposited with a bank or trust
22 company of this Commonwealth until the corporation has been
23 licensed.
24 § 3326. Disclosure of interest.
25 A person shall not participate in, receive or accept any part
26 or the promise of any part of any of the commission or reward of
27 any organizer, promoter or agent, for the sale of stock, unless
28 the name of the person and the fact of his interest in the
29 commission or reward appear upon the application or the
30 subscription. The omission of this statement shall, in addition
19850H1962B2642 - 222 -
1 to the penalty provided in this subchapter, make the person
2 liable to the purchaser or his assignees for all sums paid by
3 the purchasers, with interest at the legal rate from date of
4 payment, upon the assignment or tender of assignment of the
5 stock so purchased.
6 § 3327. Prohibited terms.
7 A person receiving any commission or other profit or
8 advantage as organizer, promoter or agent, selling or agreeing
9 or attempting to sell any such stock, or in consideration of or
10 in connection with any such sale or any subscription contract
11 shall not, directly or indirectly, make or offer to make any
12 contract or agreement other than as plainly expressed therein;
13 nor shall the contract or subscription contain any agreement for
14 employment or for any deposit or for any special advantage to
15 the person purchasing or contracting for the stock.
16 § 3328. Advertisements and prospectuses.
17 A person shall not issue, deliver, circulate or publish in
18 this Commonwealth any advertisement in any newspaper or
19 periodical or any circular or prospectus for the sale of stock
20 of any insurance corporation, whether organized or proposed to
21 be organized in or outside this Commonwealth, for the purpose of
22 soliciting or securing applications or subscriptions to, or
23 contracts for the purchase of stock in, any such corporation,
24 unless a copy of the circular, prospectus or other advertisement
25 is first filed in the office of the commissioner, containing the
26 name and address of the person issuing, delivering, circulating
27 or publishing it, with a consecutive serial number for each
28 separate form of the circular, prospectus or other
29 advertisement.
30 § 3329. Remedies.
19850H1962B2642 - 223 -
1 In the event of any violation of this subchapter, the
2 subscriber or purchaser affected thereby may elect to rescind
3 the contract and recover from the company or the agent all
4 payments, with interest at the legal rate from time of payment,
5 or he may elect to treat the contract as valid and enforceable
6 in his favor, but the contract shall not in either case be valid
7 or enforceable against the subscriber or purchaser.
8 § 3330. Criminal penalties.
9 Any person violating this subchapter commits a misdemeanor of
10 the third degree and, upon conviction, shall be sentenced to pay
11 a fine of not less than $100 nor more than $1,000, or to undergo
12 imprisonment for a period not exceeding six months, or both.
13 SUBCHAPTER C
14 AUTHORIZATION
15 Sec.
16 3341. Certification to commissioner.
17 3342. Approval of articles of agreement and letters patent.
18 3343. Recording of articles of agreement and letters patent.
19 3344. Information filed with the Auditor General.
20 3345. Certificate of authority.
21 § 3341. Certification to commissioner.
22 (a) Corporations.--Whenever one-half of the capital stock
23 and paid-in surplus of any stock insurance company mentioned in
24 the articles of agreement has been subscribed and 20% of the
25 total subscription price on each share has been paid to the
26 treasurer of the company, the president, treasurer and a
27 majority of the directors shall, under their respective oaths,
28 make a certificate to the commissioner stating:
29 (1) The number and par value of the shares of stock in
30 the company.
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1 (2) The names and residences of the subscribers.
2 (3) The number of shares subscribed by each.
3 (4) The amount paid in on each share.
4 (5) The amount of money in the hands of the treasurer on
5 account of such payments.
6 (6) Where the amount is deposited.
7 (b) Mutual companies prior to subscription.--In the case of
8 a mutual insurance company, whenever applications for insurance
9 have been received in sufficient number and amount, the
10 president, treasurer and the majority of the directors of the
11 company shall, under their respective oaths, make a certificate
12 to the commissioner stating:
13 (1) The names and residences of the persons applying for
14 insurance in the company.
15 (2) The amount agreed to be taken by each.
16 (3) The amount of money in the hands of the treasurer.
17 (c) Mutual companies after subscription.--In the case of
18 mutual life insurance companies, in addition to the certificate
19 required under subsection (b), as soon as the guarantee capital
20 has been subscribed and 50% thereof has been paid in lawful
21 money to the treasurer and the subscribers' obligations given
22 for the remaining 50% thereof, the president, treasurer and a
23 majority of the directors shall, under their respective oaths,
24 make a certificate to the commissioner stating the following:
25 (1) The number and par value of the shares of guaranty
26 stock in the company.
27 (2) The names and residences of the subscribers.
28 (3) The number of shares subscribed by each.
29 (4) The amount paid in on each share.
30 (5) The form of obligations taken for the unpaid amount.
19850H1962B2642 - 225 -
1 (6) The amount of money in the hands of the treasurer.
2 (7) Where the amount is deposited.
3 § 3342. Approval of articles of agreement and letters patent.
4 The subscribers to the articles of agreement of any insurance
5 company shall acknowledge the articles in duplicate before a
6 person empowered to take acknowledgments of deeds and forward
7 the articles in duplicate to the commissioner. If he approves
8 the articles, the commissioner shall certify in duplicate that
9 the requirements of this chapter in relation to the
10 incorporation of insurance companies have been complied with.
11 The commissioner shall submit the articles of agreement to the
12 Attorney General for examination, and, if the Attorney General
13 finds the same articles in accordance with the law, he shall
14 endorse his approval thereon and certify them in duplicate to
15 the Governor. Upon receipt of the articles of agreement the
16 Governor shall, if he approves them, endorse his approval
17 thereon in duplicate and cause letters patent to issue. The
18 letters patent shall designate the subscribers to the articles
19 and their associates as a body corporate, with succession under
20 the name designated in the articles. A company receiving letters
21 patent may not engage in the business of insurance until all
22 provisions of this chapter have been complied with.
23 § 3343. Recording of articles of agreement and letters patent.
24 In any incorporation of an insurance company, the Secretary
25 of the Commonwealth shall cause the articles of agreement,
26 together with the proceedings thereon, and the certificate of
27 the Governor to be recorded in a book kept for that purpose. The
28 Secretary of the Commonwealth shall return one of the articles
29 and the letters patent to the company, which shall have them
30 recorded in the county of the company's principal place of
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1 business. The Secretary of the Commonwealth shall furnish the
2 commissioner with a certified copy of the letters patent and
3 shall certify the duplicate articles of agreement, with all
4 endorsements thereon, and file the articles in the office of the
5 commissioner. Copies of the records certified by the Secretary
6 of the Commonwealth may be used in evidence with the same effect
7 as the original.
8 § 3344. Information filed with the Auditor General.
9 (a) General rule.--A stock or mutual insurance company
10 incorporated under the law of this Commonwealth shall not go
11 into operation without first having the following registered in
12 the office of the Auditor General:
13 (1) The name of the company.
14 (2) The date of incorporation.
15 (3) The statute or authority under which incorporated or
16 organized.
17 (4) The place of business.
18 (5) The post office address and names of the president,
19 secretary and treasurer.
20 (6) The amount of capital stock, if any, authorized by
21 its charter.
22 (7) The amount of capital stock and paid-in surplus paid
23 into the treasury of the company.
24 (b) Penalty.--A company which neglects or refuses to comply
25 with this section shall be subject to a penalty of $500, which
26 shall be collected on an account settled by the Auditor General
27 and State Treasurer in the same manner as taxes on stock are
28 settled and collected.
29 § 3345. Certificate of authority.
30 (a) Corporations.--When the entire amount of the authorized
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1 capital of a stock insurance company incorporated under this
2 chapter has been paid in, certificates shall be issued therefor
3 to the persons entitled to receive the certificates,
4 transferable upon the books of the company. The president or
5 secretary of the company shall at that time notify the
6 commissioner that the entire capital stock and paid-in surplus
7 of the company has been paid in and that it is ready to commence
8 business. Upon receipt of this notice, the commissioner shall
9 examine the company. If he finds that it has complied with the
10 provisions and meets the requirements of this chapter and is
11 possessed of funds, invested in accordance with this title,
12 equal to the amount of its capital stock and paid in surplus, he
13 shall issue to the company a certificate showing that it has
14 been organized in accordance with this chapter and that it has
15 the requisite amount of capital stock and paid in surplus for
16 the transaction of business in this Commonwealth. The
17 certificate shall be required to authorize the company to issue
18 policies and otherwise transact the business of insurance for
19 which it was incorporated.
20 (b) Mutual companies.--In the case of a mutual life
21 insurance company incorporated under this title, upon the
22 receipt of a notice from the president or secretary of the
23 company, the commissioner shall make an examination. If he finds
24 that the necessary amount of insurance has been applied for and
25 that 50% of the guarantee capital has been paid in and invested,
26 less the necessary expenses of organization, and that
27 obligations have been given for the remaining 50% of the
28 guarantee capital, he shall issue a certificate authorizing the
29 company to commence business. The commissioner shall, upon the
30 receipt of a notice from the president or secretary of any
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1 mutual company, other than a mutual life insurance company,
2 incorporated under this subchapter, make an examination of the
3 company, and if he finds that the company has complied with the
4 provisions of this subchapter, he shall issue a certificate
5 authorizing the company to commence business.
6 (c) Examination by commissioner.--In addition to his other
7 powers under this section, the commissioner may conduct such
8 examination of any proposed company as he deems necessary to
9 determine whether the responsibility, character and general
10 fitness for the business of the incorporators and directors are
11 such as to command the confidence of the public and to warrant
12 the belief that the business of the proposed company will be
13 lawfully, honestly and efficiently conducted.
14 SUBCHAPTER D
15 VALUATION OF SECURITIES
16 Sec.
17 3351. Valuation of securities.
18 § 3351. Valuation of securities.
19 All bonds or other evidences of debt held by any domestic or
20 foreign stock or mutual insurance entity authorized to do
21 business in this Commonwealth shall, if amply secured and if not
22 in default as to principal or interest, be valued:
23 (1) If purchased at par, at the par value.
24 (2) If purchased above or below par, either:
25 (i) on the basis of the purchase price adjusted so
26 as to bring the value to par at maturity and so as to
27 yield, meantime, the effective rate of interest at which
28 the purchase was made; or
29 (ii) on the basis of the method of calculation
30 commonly known as the pro rata method.
19850H1962B2642 - 229 -
1 The purchase price shall be taken at a higher figure than the
2 actual market value at the time of purchase. The commissioner
3 may determine the eligibility of any such investments for
4 valuation on the basis of amortization and may by regulation
5 prescribe or limit the classes of securities eligible for
6 amortization. The insurer may return the bonds or other
7 evidences of debt at their market value or their book value but
8 not at an aggregate value exceeding the aggregate of the values
9 calculated according to the method employed by it in conformity
10 with this section. If a bond or evidence of debt amply secured
11 and not in default as to principal or interest has been acquired
12 by a domestic stock or mutual entity as a result of an exchange
13 of securities, and the commissioner has determined the
14 transaction to be an exchange and to be for the betterment of
15 the portfolio of the insurer, the purchase price of the bond or
16 evidence of debt shall be deemed to be the value of the security
17 or securities exchanged therefor, as shown in the last preceding
18 annual statement of the domestic stock or mutual entity filed
19 with the commissioner.
20 SUBCHAPTER E
21 CONVERSION OF MUTUAL COMPANIES TO CORPORATIONS
22 Sec.
23 3361. Definitions.
24 3362. Valuation of interest of owner.
25 3363. Documentation filed with commissioner.
26 3364. Determination by commissioner.
27 3365. Hearing on approval.
28 3366. Approval of plan of conversion by policyholders.
29 3367. Recording plan of conversion.
30 3368. Legal effect of conversion.
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1 3369. Subscriptions to capital stock of company.
2 3370. Survival of mutual policies.
3 3371. Laws applicable to converted companies.
4 3372. Commencement of business.
5 § 3361. Definitions.
6 The following words and phrases when used in this subchapter
7 shall have the meanings given to them in this section unless the
8 context clearly indicates otherwise:
9 "Company." A mutual insurance company organized by or under
10 any law of this Commonwealth, other than a mutual life insurance
11 company or a company which operates exclusively on the basis of
12 perpetual policies issued in consideration of an initial deposit
13 of moneys with the insurer to be held by it during the time the
14 policies are in force and to be returned to the insureds, in
15 whole or in part, upon cancellation of the policies.
16 "Owner." A policyholder of the company or the holder of a
17 certificate issued by the company pursuant to section 4710
18 (relating to loans to companies).
19 § 3362. Valuation of interest of owner.
20 In valuing the interest of each owner in the surplus of the
21 company, surplus shall be allocated:
22 (1) To holders of certificates issued under section 4710
23 (relating to loans to companies) to the full extent of the
24 face value thereof.
25 (2) The balance of the surplus, if any, remaining after
26 the allocation provided in paragraph (1), to policyholders on
27 the basis of the ratio which the net premium which each
28 policyholder has paid to the company during the three years
29 ending with the fiscal year of the company immediately
30 preceding that in which the allocation is made bears to the
19850H1962B2642 - 231 -
1 total net premiums received by the company during that three-
2 year period. As used in this paragraph the term "net premium"
3 means gross premium less return premium and dividends
4 received.
5 § 3363. Documentation filed with commissioner.
6 Any company intending a conversion pursuant to this
7 subchapter shall file with the commissioner:
8 (1) A resolution passed by the board of directors of the
9 company to the effect that the conversion of the company to a
10 stock insurance company is advisable, and stating the reasons
11 therefor.
12 (2) A comprehensive plan of conversion of the company
13 into a stock insurance company, which shall contain the
14 following information:
15 (i) A statement of all the assets and liabilities of
16 the company, setting forth the current fair market value
17 of each of the assets.
18 (ii) A list of the owners of the company together
19 with the value of the interest of each owner in the
20 surplus of the company determined as set forth in section
21 3362 (relating to valuation of interest of owner).
22 (iii) The number of shares of capital stock to be
23 issued and the manner of converting the interest in the
24 surplus of each owner of the company into shares of the
25 company under the stock plan.
26 (iv) The manner of making payment in cash to owners
27 of the company who fail or refuse within a specified
28 period of time to convert their interest in the surplus
29 into stock and the amount of the payment.
30 (v) The amount of the new capital stock for which
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1 each owner may subscribe and how and when the
2 subscriptions are payable, including the procedure for
3 buying or selling rights to subscribe to less than a full
4 share so that no fractional shares of capital stock will
5 be issued.
6 (vi) The manner of providing for paid-in surplus and
7 appropriate reserves in amounts at least sufficient to
8 comply with the requirements of section 3306 (relating to
9 minimum capital stock and financial requirements).
10 (vii) A list of all persons who are directors or
11 executive officers of the company or who perform similar
12 functions, and all persons who have been chosen to become
13 directors or executive officers or to perform similar
14 functions after the conversion, but who have not yet
15 assumed their positions.
16 (viii) Such plans and arrangements as the company
17 may have for its future business and management,
18 including those with respect to total or partial
19 liquidation, sale of assets, merger, material change in
20 business, corporate structure, management or composition
21 of the board of directors.
22 (ix) Information as to any contracts or arrangements
23 with respect to any securities of the company, including,
24 but not limited to, contracts or arrangements with
25 respect to transfer of any securities, joint ventures,
26 loan or option agreements, puts or calls, guaranties of
27 loans, guaranties against loss or guaranties of profits,
28 division of losses or profits, or the giving or
29 withholding of proxies, naming the parties to such
30 contracts or arrangements and giving the details thereof.
19850H1962B2642 - 233 -
1 (x) Such proposed amendments to the charter of the
2 company as may be necessary for the purpose of changing
3 its name, changing the location of its principal office
4 or place of conducting its business, changing its purpose
5 or purposes or for any other purpose.
6 (xi) Such additional information as the commissioner
7 may require to enable him to make a determination under
8 section 3364 (relating to determination by commissioner).
9 § 3364. Determination by commissioner.
10 (a) General rule.--The commissioner after making an
11 examination of the company and holding a hearing shall determine
12 if:
13 (1) The plan of conversion is fair to the owners and
14 creditors of the company and complies with the requirements
15 of section 3363 (relating to documentation filed with
16 commissioner).
17 (2) He has any reason to believe that after the
18 conversion the company will not continue to comply in all
19 respects with the laws and regulations of this Commonwealth
20 governing insurance.
21 (b) Notice.--The commissioner shall notify the company of
22 his determination.
23 § 3365. Hearing on approval.
24 (a) Notice.--Notice of the hearing required by section 3364
25 (relating to determination by commissioner) shall be served as
26 follows:
27 (1) By publication not less than three times in one
28 newspaper of general circulation published in the county in
29 which the principal office of the company is located, and in
30 the legal periodical, if any, designated by the rules of
19850H1962B2642 - 234 -
1 court of the county for the publication of legal notices.
2 (2) By written or printed notice addressed and mailed by
3 certified mail, with return receipt requested, to each owner
4 at his address as shown on the books of the company at least
5 ten days before the hearing date. The form of the notice
6 shall be approved in advance of mailing by the commissioner
7 and shall be accompanied by a copy of the plan of conversion.
8 (b) Procedure.--Any hearing held pursuant to this subchapter
9 shall be conducted, and the determination of the commissioner
10 shall be rendered, in accordance with Title 2 (relating to
11 administrative law and procedure).
12 § 3366. Approval of plan of conversion by policyholders.
13 (a) Submission of plan.--If an approving determination is
14 made by the commissioner, and not otherwise, the plan of
15 conversion shall be submitted to the policyholders of the
16 company for approval at the regular annual meeting of the
17 company or at a meeting specially called for the purpose of
18 approval. At least four weeks' previous notice of this meeting
19 shall be given by publication not less than three times in a
20 newspaper of general circulation, published in the county in
21 which the principal office of the company is located, and by
22 written or printed notice addressed and mailed by certified
23 mail, with return receipt requested, to each policyholder at his
24 address as shown on the books of the company.
25 (b) Approval of plan.--If a quorum is present at the special
26 meeting and the majority of the policyholders who attend the
27 meeting, either in person or by proxy, approve the plan of
28 conversion following due proof of the adequacy of the notice and
29 the results of the meeting being made to the commissioner in a
30 form satisfactory to him, the directors of the company shall, at
19850H1962B2642 - 235 -
1 such times and places as they deem convenient and proper, open
2 books and receive subscriptions to the stock of the company and
3 shall keep the books open until the full amount of capital stock
4 specified in the plan of conversion is subscribed.
5 § 3367. Recording plan of conversion.
6 Upon approval of the plan of conversion by the policyholders,
7 the fact of approval shall be set forth in duplicate
8 certificates to be executed by the secretary of the company
9 under the seal thereof. The certificates, with a copy of the
10 approved plan of conversion attached to each, shall be filed
11 with the commissioner who shall then certify in duplicate that
12 all of the requirements of this subchapter have been complied
13 with. The commissioner shall submit the certified plan of
14 conversion to the Secretary of the Commonwealth for recording.
15 The certified plan shall be recorded by the company in the
16 office of the recorder of deeds in the county in which the
17 principal office of the company is located.
18 § 3368. Legal effect of conversion.
19 When the plan of conversion has been recorded as provided in
20 section 3367 (relating to recording plan of conversion):
21 (1) Any amendments to the charter of the company set
22 forth in the plan of conversion shall be deemed to form part
23 of the charter of the company.
24 (2) All rights of the policyholders of the company to
25 vote at any meeting of the company or to retain any interest
26 in the company or in the property or assets thereof shall
27 absolutely cease and determine.
28 The company shall at that time become a stock insurance company
29 under the corporate name adopted under the plan of conversion.
30 The Secretary of the Commonwealth shall issue to the company a
19850H1962B2642 - 236 -
1 certificate, under his hand and the seal of his office,
2 evidencing the right of the company to use the corporate name.
3 § 3369. Subscriptions to capital stock of company.
4 Owners of the company may subscribe to its capital stock at
5 par value in proportion to their respective interests in the
6 surplus of the company, as set forth in the plan of conversion
7 approved by the commissioner. No share of stock shall be
8 disposed of or a certificate issued therefor unless the actual
9 par value thereof has been paid to the company in cash, except
10 stock issued to owners of the company in conversion of their
11 respective interests in its surplus. Subscriptions shall be made
12 in writing and filed with the proper officer of the company in
13 accordance with the plan of conversion. Stock issued to the
14 owners of the company in conversion of their respective
15 interests in its surplus pursuant to this section shall not be
16 subject to the act of December 5, 1972 (P.L.1280, No.284), known
17 as the Pennsylvania Securities Act of 1972, or to regulation by
18 the Pennsylvania Securities Commission.
19 § 3370. Survival of mutual policies.
20 The issued and outstanding mutual policies of the company and
21 all the rights and liabilities attached thereto, and all the
22 powers and obligations of the company with reference to them,
23 shall survive and be powers and obligations of the stock
24 insurance company so long as the policies remain in force,
25 except that the stock insurance company shall have no power to
26 levy any assessment against any policyholder.
27 § 3371. Laws applicable to converted companies.
28 Except as otherwise specified in this subchapter, a company
29 converted into a stock insurance company under this subchapter
30 shall have all the rights and privileges and shall be subject to
19850H1962B2642 - 237 -
1 all the requirements and regulations imposed upon stock
2 insurance companies formed under this title, but it shall
3 exercise no rights or privileges which other stock insurance
4 companies may not exercise.
5 § 3372. Commencement of business.
6 A company may not engage in the business of insurance as a
7 stock insurance company until this subchapter has been complied
8 with.
9 CHAPTER 35
10 CORPORATE OPERATIONS
11 Subchapter
12 A. Conduct of Business
13 B. Election of Directors and Officers
14 C. Fundamental Changes
15 D. Merger, Consolidation and Voluntary Dissolution
16 E. Foreign or Alien Companies
17 F. Violations and Penalties
18 SUBCHAPTER A
19 CONDUCT OF BUSINESS
20 Sec.
21 3501. Use of company name.
22 3502. Stock and stockholders.
23 3503. Ownership of stock.
24 3504. Bylaws and seal.
25 3505. Administrative affairs.
26 3506. Salaries of employees in military service.
27 3507. Pensions.
28 3508. Execution of insurance policies.
29 3509. Joint policies.
30 3510. Incorporation of documents in policy.
19850H1962B2642 - 238 -
1 3511. Lost insurance policies.
2 3512. Reinsurance.
3 3513. Reinsurance credits.
4 3514. Reinsurance among affiliates.
5 3515. Approval of contracts by commissioner.
6 3516. Mortgage insurance.
7 3517. Distribution of dividends on group insurance.
8 § 3501. Use of company name.
9 The commissioner may prohibit the use, by any domestic stock
10 or mutual insurance company or association and the use in this
11 Commonwealth by any foreign or alien stock or mutual insurance
12 company or association, of any name adopted on or after December
13 30, 1959, when, in his judgment, the name too closely resembles
14 that of an existing company or association authorized to do
15 business in this Commonwealth or is likely to confuse or mislead
16 the public.
17 § 3502. Stock and stockholders.
18 (a) Rights of stockholders.--Any stockholder shall be
19 entitled to receive a certificate of the number of shares
20 standing to his credit on the books of the company. This
21 certificate shall be signed by the president, vice president or
22 other officer designated by the board of directors,
23 countersigned by the treasurer and sealed with the seal of the
24 company which may be a facsimile, engraved or printed. This
25 certificate or evidence of stock ownership may be transferred
26 upon the books of the company in person or by attorney in such a
27 manner as the bylaws prescribe, subject to all payments to
28 become due thereon.
29 (b) Certificate.--If a certificate is signed by a transfer
30 agent or by a transfer clerk of the company and a registrar, the
19850H1962B2642 - 239 -
1 signature of any company officer upon the certificate may be a
2 facsimile, engraved or printed. In case any officer who has
3 signed or whose facsimile signature has been placed upon any
4 share certificate has ceased to be an officer for any reason
5 before the certificate is issued, it may nevertheless be issued
6 by the company.
7 (c) Limitations on rights.--Stock shall not be transferred
8 until all previous calls on it have been fully paid in. Stock
9 which has been declared forfeited for nonpayment of calls shall
10 not be transferable. The assignee or party to whom the stock is
11 transferred shall be a member of the company and enjoy the
12 rights and be subject to the liabilities thereof. Upon a sale of
13 stock in satisfaction of any debt for which it is pledged, the
14 purchaser may compel a transfer of the stock upon the books of
15 the company and the delivery of the proper certificate.
16 § 3503. Ownership of stock.
17 (a) Filing of statement.--Every person who is directly or
18 indirectly the beneficial owner of more than 10% of any class of
19 any equity security of a domestic stock insurance company, or
20 who is a director or an officer of a company, shall file a
21 statement with the commissioner in such form as the commissioner
22 shall prescribe. The statement shall be filed within ten days
23 after the person becomes a beneficial owner, director or
24 officer, listing the amount of all equity securities of the
25 company of which he is the beneficial owner. A statement in such
26 form as the commissioner shall prescribe shall also be filed
27 within ten days after the close of each calendar month, if there
28 has been a change in ownership during that month, indicating
29 each person's ownership at the close of the calendar month and
30 such changes in his ownership as have occurred during the
19850H1962B2642 - 240 -
1 calendar month.
2 (b) Limitations on short-term transactions.--For the purpose
3 of preventing the unfair use of information which may have been
4 obtained by a beneficial owner, director or officer by reason of
5 his relationship to the company, any profit realized by him from
6 any purchase and sale, or any sale and purchase, of any equity
7 security of the company within any period of less than six
8 months, unless the security was acquired in good faith in
9 connection with a debt previously contracted, shall inure to and
10 be recoverable by the company. This is the case irrespective of
11 any intention on the part of the beneficial owner, director or
12 officer in entering into the transaction of holding the security
13 purchased or of not repurchasing the security sold for a period
14 exceeding six months. An action to recover this profit may be
15 instituted at law or in equity in any court of competent
16 jurisdiction by the company, or by the owner of any security of
17 the company in the name and on behalf of the company, if the
18 company fails or refuses to bring the action within 60 days
19 after request or fails to prosecute the suit diligently.
20 However, no action shall be brought more than two years after
21 the date the profit was realized. This subsection does not cover
22 any transaction where the beneficial owner was not such at the
23 time of the purchase and sale, or the sale and purchase, of the
24 security, or any transaction which the commissioner by
25 regulation exempts as not within the purpose of this subsection.
26 (c) Sale of securities.--A beneficial owner, director or
27 officer shall not sell, directly or indirectly, any equity
28 security of the company if the person selling the security or
29 his principal does not own the security sold or, if owning the
30 security, he fails to deliver it against the sale within 20 days
19850H1962B2642 - 241 -
1 after the sale or fails within five days after the sale to
2 deposit it in the mail or another usual channel of
3 transportation. However, a person shall not be deemed to have
4 violated this subsection if, notwithstanding the exercise of
5 good faith, he was unable to make the delivery or deposit within
6 the required time or if doing so would have caused undue
7 inconvenience or expense.
8 (d) Dealers.--Subsection (b) does not apply to any purchase
9 and sale, or sale and purchase, and subsection (c) does not
10 apply to any sale, of an equity security of a domestic stock
11 insurance company not then or theretofore held by him in an
12 investment account, by a dealer in the ordinary course of his
13 business and incident to the establishment or maintenance by him
14 of a primary or secondary market, other than on an exchange as
15 defined in section 3 of Securities Exchange Act of 1934 (48
16 Stat. 882, 15 U.S.C. § 78c(a)(1)) for the security. The
17 commissioner may by regulation define and prescribe terms and
18 conditions with respect to securities which shall be held in an
19 investment account and transactions made in the ordinary course
20 of business and incident to the establishment or maintenance of
21 a primary or secondary market.
22 (e) Arbitrage transactions.--Subsections (a), (b) and (c) do
23 not apply to foreign or domestic arbitrage transactions unless
24 made in contravention of any regulations the commissioner
25 promulgates in order to carry out the purposes of this section.
26 (f) Limitation on the applicability of section.--The
27 provisions of subsections (a), (b) and (c) do not apply to
28 equity securities of a domestic stock insurance company if:
29 (1) the securities are registered or are required to be
30 registered pursuant to the Federal Securities Exchange Act of
19850H1962B2642 - 242 -
1 1934 (48 Stat. 881, 15 U.S.C. § 78 et seq.); or
2 (2) the domestic stock insurance company does not have
3 any class of its equity securities held of record by 100 or
4 more persons on the last business day of the year next
5 preceding the year in which equity securities of the company
6 would be subject to the provisions of subsections (a), (b)
7 and (c) except for the provisions of this paragraph.
8 (g) Regulations.--No provision of subsections (a), (b), and
9 (c) imposing any liability shall apply to any act done or
10 omitted in good faith in conformity with any rule or regulation
11 of the commissioner, notwithstanding that the rule or regulation
12 may, after the act or omission, be amended or rescinded or
13 determined by judicial or other authority to be invalid for any
14 reason.
15 (h) Criminal penalty.--Any person violating this section
16 commits a misdemeanor of the third degree and, upon conviction,
17 shall be sentenced to pay a fine not exceeding $500 for each
18 violation.
19 (i) Definition.--As used in this section the term "equity
20 security" means any of the following:
21 (1) A stock or similar security.
22 (2) A security convertible, with or without
23 consideration, into such a security or carrying a warrant or
24 right to subscribe to or purchase such a security.
25 (3) Any such warrant or right.
26 (4) Any other security which the commissioner by
27 regulation deems to be of similar nature and considers
28 necessary or appropriate.
29 § 3504. Bylaws and seal.
30 A company incorporated under Chapter 33 (relating to
19850H1962B2642 - 243 -
1 incorporation of insurance companies) may make any bylaws
2 necessary for the government of its officers and the conduct of
3 its affairs, alter and amend the bylaws, have a common seal and
4 change the seal.
5 § 3505. Administrative affairs.
6 (a) Officers.--The directors or trustees shall annually
7 choose by ballot a president, who shall be a member of the
8 board, a secretary and a treasurer, who may also be either the
9 president or the secretary, and such other officers as the
10 bylaws provide. The directors or trustees shall fix the salaries
11 of the president, secretary and treasurer and the salaries or
12 compensation of such other officers and agents as the bylaws
13 prescribe. The treasurer shall give bond in a sum and with the
14 sureties prescribed by the bylaws.
15 (b) Vacancies.--Vacancies in any office may be filled by the
16 directors or trustees or by the stockholders or members as the
17 bylaws prescribe.
18 (c) Removal.--Any person chosen, either annually or to fill
19 a vacancy, as president, secretary, treasurer or as any other
20 officer shall continue to serve in the office unless the
21 commissioner, after investigation, determines that the
22 responsibility, character and general fitness for the business
23 of the individual are not such as to command the confidence of
24 the public and to warrant the belief that the business of the
25 company will be honestly and efficiently conducted. Any
26 adjudication by the commissioner pursuant to this subsection
27 shall be subject to 2 Pa.C.S. Ch. 5 Subch. A (relating to
28 practice and procedure of Commonwealth agencies).
29 § 3506. Salaries of employees in military service.
30 Any stock or mutual insurance company may continue the
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1 salaries of any employee which he serves as a member of any
2 branch of the armed service of the United States or of any state
3 or in any other organization established for the protection of
4 the lives and property of citizens of the United States.
5 § 3507. Pensions.
6 Any stock or mutual insurance company may, out of the
7 earnings of the company, grant retirement allowances, pensions
8 or disability pay to officers and employees. This section does
9 not apply to any director who is not an officer or employee of
10 the company.
11 § 3508. Execution of insurance policies.
12 Policies of insurance, made or entered into by any stock or
13 mutual insurance company, may be made either with or without the
14 company seal. The policies shall be subscribed by the president
15 or any other officer designated by the directors or trustees.
16 The policies shall be attested by the secretary or other
17 designated officer and, when so subscribed and attested, shall
18 be obligatory on the company.
19 § 3509. Joint policies.
20 Two or more insurance entities authorized to transact the
21 same kinds of insurance business in this Commonwealth may issue
22 a combination policy, using a distinctive title. The title shall
23 follow the titles of the several entities so obligated. The
24 policy shall be executed by each entity in the same manner as it
25 would execute its individual policy. The policy shall state that
26 it is a joint contract and that each entity is only liable for a
27 specific percentage of any loss or damage occurring under it.
28 Before any entity issues a combination policy, it shall receive
29 the express permission of the commissioner to issue the policy
30 and the title shall be approved by him.
19850H1962B2642 - 245 -
1 § 3510. Incorporation of documents in policy.
2 Any insurance policy issued by a stock or mutual insurance
3 company or association doing business in this Commonwealth, in
4 which the application of the insured, the constitution, bylaws
5 or other rules of the company form part of the policy or
6 contract between the parties or have any bearing on the
7 contract, shall contain, or have attached copies of the
8 application as signed by the applicant, or the constitution,
9 bylaws or other rules referred to. Unless so accompanying the
10 policy, no such application, constitution, bylaws or other rules
11 shall be received in evidence in any proceeding pertaining to
12 the policy or deemed a part of the policy or contract between
13 the parties.
14 § 3511. Lost insurance policies.
15 (a) General rule.--Whenever any policy of insurance upon any
16 property, granted by any body corporate or politic, has been
17 lost or destroyed, the issuer shall, on proof of the loss or
18 destruction of the policy, furnish a copy of the policy to the
19 person whose policy has been lost or destroyed. Any transfers
20 which have been approved and recorded on the books of the
21 issuer, which have been made by the original or subsequent
22 grantee of the policy to the person having the same at the time
23 of the loss or destruction thereof, shall be included with the
24 copy. The copy made under this section shall have the same
25 effect as the original and subject to the same extent to
26 transfer to any person purchasing the property insured.
27 (b) Proceedings in case of lost policy.--The holder of the
28 policy may file a complaint with the county in which the
29 property has been insured, setting forth the loss or destruction
30 of the policy of insurance, the petitioner's demand upon the
19850H1962B2642 - 246 -
1 insurer for a copy of the policy, a description of the property,
2 the amount for which it was insured and the person or persons to
3 whom granted, if practicable, together with any transfers
4 thereof.
5 § 3512. Reinsurance.
6 (a) Approval of commissioner.--A domestic stock or mutual
7 insurance entity shall not reinsure its entire schedule of
8 policies except by approval of the commissioner.
9 (b) Authorization to reinsure.--Any domestic or foreign
10 stock or mutual insurance entity authorized to transact business
11 in this Commonwealth may reinsure all or any part of its
12 liability under one or more of its policy contracts with any
13 stock or mutual insurance entity doing the same or a similar
14 kind of business and licensed to transact business in this
15 Commonwealth or in any state, if the entity maintains the same
16 standard of solvency and meets all other requirements under the
17 law of this Commonwealth for entities transacting the same
18 classes of business in this Commonwealth. Any domestic or
19 foreign stock or mutual insurance entity authorized to transact
20 business in this Commonwealth shall pay to this Commonwealth
21 taxes required on all business taxable in this Commonwealth and
22 reinsured under this section and may take credit for the
23 reserves of each ceded risk to the extent reinsured subject to
24 the exceptions provided in sections 3513 (relating to
25 reinsurance credits) and 3514 (relating to reinsurance among
26 affiliates).
27 § 3513. Reinsurance credits.
28 (a) Qualification of reinsurer.--Unless an unlicensed
29 reinsurer is qualified to accept reinsurance from insurers
30 licensed in this Commonwealth, a credit shall not be allowed as
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1 an admitted asset or as a reduction of liability relative to
2 risks ceded by the licensed insurers. Reinsurers meeting the
3 conditions for reinsurers specified by the commissioner and
4 included on a list of qualified reinsurers published and
5 periodically reviewed by the commissioner shall be deemed
6 qualified reinsurers.
7 (b) Reserve credit for liability assumed.--A credit shall
8 not be allowed as an admitted asset or as a deduction from
9 liability to any ceding entity for reinsurance, unless the
10 reinsurance is payable to the entity or its statutory liquidator
11 by the assuming entity on the basis of the liability of the
12 ceding entity under contract or contracts reinsured without
13 diminution because of insolvency of the ceding entity.
14 (c) Payment by assuming entity.--A credit shall not be
15 allowed for reinsurance unless the reinsurance agreement
16 provides that payment by the assuming entity shall be made
17 directly to the ceding entity or to its liquidator, receiver or
18 statutory successor.
19 § 3514. Reinsurance among affiliates.
20 (a) Exemption.--Sections 3512 (relating to reinsurance) and
21 3513 (relating to reinsurance credits) do not apply to
22 reinsurance agreements between or among affiliates covering all
23 or substantially all of one or more lines of insurance of an
24 affiliated domestic or foreign stock or mutual insurance entity.
25 However, the amount of net written premium retained and the
26 amount of the reinsurance and retrocession assumed by any
27 affiliate participating agreement shall not be unreasonably
28 large in relationship to its policyholders' surplus.
29 (b) Definitions.--As used in this section the terms
30 "affiliated" and "affiliate" shall have the meanings set forth
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1 in section 3569 (relating to holding company systems), except
2 that control shall be presumed to exist if any person directly
3 or indirectly owns, controls, holds with power to vote or holds
4 shares representing 80% or more of the voting power of any other
5 person.
6 § 3515. Approval of contracts by commissioner.
7 (a) Forms approved by commissioner.--An insurance entity,
8 including a domestic mutual fire insurance company, doing
9 business in this Commonwealth shall not issue, sell or dispose
10 of any policy, contract or certificate of insurance or
11 pertaining to a pure endowment or annuity or use any
12 application, rider or endorsement in connection therewith,
13 unless the forms have previously been filed with and formally
14 approved by the commissioner. This section does not apply to
15 riders and endorsements relating to the manner of distribution
16 of benefits to the reservation of rights and benefits under any
17 policy used at the request of the individual policyholder or to
18 any forms which are exempted therefrom by the commissioner.
19 (b) Deemed approval.--Forms filed under this section or any
20 other provision of this title, unless specifically provided
21 otherwise, shall be deemed approved at the expiration of 30 days
22 after filing, unless earlier approved or disapproved by the
23 commissioner. The commissioner, by written notice to the insurer
24 within this 30-day period, may extend the period for approval or
25 disapproval for an additional 30 days. Approval under this
26 subsection shall become void upon any subsequent notice of
27 disapproval from the commissioner or upon any subsequent
28 withdrawal of license or refusal of the commissioner to
29 relicense the entity or upon the subsequent passage of a statute
30 which would prohibit such contracts or related forms.
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1 (c) Hearing.--Upon disapproval, the commissioner shall
2 notify the insurer in writing, specifying the reason for the
3 disapproval. Within 30 days from the date of mailing of the
4 notice to the insurer, the insurer may make a written
5 application to the commissioner for a hearing. The hearing shall
6 be held within 30 days after receipt of the application. The
7 procedure before the commissioner shall be in accordance with 2
8 Pa.C.S. Ch. 5 Subch. A (relating to practice and procedure of
9 Commonwealth agencies), and the insurer shall be entitled to
10 judicial review under 2 Pa.C.S. Ch. 7 Subch. A (relating to
11 judicial review of Commonwealth agency action).
12 § 3516. Mortgage insurance.
13 Insurance entities may make application for and obtain
14 insurance of mortgages as provided by the National Housing Act
15 of 1934 (48 Stat. 1246, 12 U.S.C. § 1701 et seq.).
16 § 3517. Distribution of dividends on group insurance.
17 Any dividends declared or rate reductions made or continued
18 under any group insurance policy or group annuity contract
19 issued may be applied to reduce the employer's part of the cost.
20 However, if, at any time, under a policy or contract providing
21 for employee contributions, the aggregate of any dividends or
22 rate reductions so applied is in excess of the employer's share
23 of the aggregate cost, the excess shall be applied by the
24 employer for the sole benefit of the employees.
25 SUBCHAPTER B
26 ELECTION OF DIRECTORS AND OFFICERS
27 Sec.
28 3531. Annual meetings.
29 3532. Voting rights.
30 3533. Election of directors and trustees.
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1 3534. Mutual fire insurance companies.
2 3535. Voting by stockholders and members.
3 3536. Proxies issued by domestic stock companies.
4 3537. Cumulative voting.
5 3538. Failure to elect directors or trustees.
6 3539. Directors and trustees.
7 § 3531. Annual meetings.
8 (a) Time.--Every insurance company shall hold an annual
9 meeting for the election of directors or trustees on or before
10 May 1 as the bylaws of the company direct.
11 (b) Notice.--At least 30 days' notice of the time and place
12 of the meeting shall be given to the stockholders or, in the
13 case of a mutual company, to the members by publication not less
14 than three times in at least two daily or weekly newspapers and
15 in the legal periodical designated by the rules of court of the
16 proper county for the publication of legal notices published in
17 the municipality where the company is domiciled.
18 (c) Quorum.--Every stock and mutual insurance company may
19 determine by its bylaws what number of members or stockholders
20 shall attend, either in person or by proxy, or what number of
21 shares or amount of interest shall be represented at any meeting
22 to constitute a quorum. If the quorum is not so determined, a
23 majority in interest of the members or stockholders shall
24 constitute a quorum.
25 § 3532. Voting rights.
26 (a) Right to vote stock.--The certificate of stock or the
27 transfer books of any stock insurance company shall be prima
28 facie evidence of the right of the person named therein to vote
29 as the owner, either personally or by proxy.
30 (b) Objections.--An objection may be taken by a stockholder
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1 at the time a ballot is tendered which shall be accompanied by a
2 written statement under oath that the person who is offering to
3 vote the stock is not the owner, either in his own right or as
4 active trustee with the character of his trusteeship disclosed
5 on the face of the certificate or transfer books in connection
6 with his name. The judges of election shall immediately
7 determine whether the facts are as represented in the statement,
8 and, if so, the vote or votes shall be rejected. In any case
9 where the person named in the certificate or transfer books is
10 not permitted to vote, the beneficial owner of the stock may
11 vote, upon furnishing to the judge of election satisfactory
12 evidence of ownership.
13 (c) Powers of certain fiduciaries unaffected.--This section
14 does not prohibit executors, administrators, guardians or
15 trustees, created by a will or a decree of court, from voting
16 stock standing in the name of a decedent, minor or other
17 beneficiary.
18 (d) Pledged stock.--As between the pledgor and the pledgee
19 of capital stock pledged to secure a specific loan with a fixed
20 period or periods of maturity, the right to vote shall be
21 determined under the written agreement of the pledgor and
22 pledgee, but if no such agreement exists, the pledgor shall be
23 entitled to the right to vote.
24 § 3533. Election of directors and trustees.
25 (a) General rule.--At the annual meeting, the stockholders
26 or members shall elect by ballot from their own number not less
27 than seven directors or trustees. The directors or trustees
28 shall be natural persons of majority age and need not be
29 residents of this Commonwealth unless the articles or bylaws so
30 require, but at least two-thirds shall be citizens of the United
19850H1962B2642 - 252 -
1 States or its territories or possessions. These persons shall
2 serve for one year and until their successors are chosen and
3 qualified.
4 (b) Classes of directors.--Any insurance company may provide
5 in its bylaws for the divisions of its board of directors or
6 trustees into as many as four classes and may provide for the
7 election thereof at its annual meetings in a manner such that
8 the members of one class only shall retire and their successors
9 shall be chosen each year.
10 (c) Vacancies.--Vacancies, including those resulting from an
11 increase in the number of directors or from failure of the
12 stockholders to fill any class of directors, may be filled by an
13 election by the board of directors or trustees for the unexpired
14 term.
15 (d) Removal.--Any stockholder or member elected to the post
16 of director or trustee shall continue in office unless the
17 commissioner, after investigation, determines that the
18 responsibility, character and general fitness for the business
19 of the individual are not such as to command the confidence of
20 the public and to warrant the belief that the business of the
21 company will be honestly and efficiently conducted. Any
22 adjudication by the commissioner under this subsection shall be
23 subject to 2 Pa.C.S. Ch. 5 Subch. A (relating to practice and
24 procedure of Commonwealth agencies).
25 § 3534. Mutual fire insurance companies.
26 A majority of the board of directors or trustees of a mutual
27 fire insurance company shall be residents of this Commonwealth.
28 The number of directors or trustees may be increased or
29 diminished by the members of the company at any regular annual
30 meeting or at any special meeting called for that purpose, of
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1 which notice shall be given as required by the bylaws. The
2 company, by its bylaws, may authorize the board to increase or
3 decrease the number of directors or trustees without a vote of
4 the members. The company, by the bylaws, may provide for written
5 nominations by any of its members for election as directors or
6 trustees and for the time and manner of filing the nominations
7 with the company prior to the meeting at which the election is
8 to be held. Only persons so nominated shall be eligible for
9 election at the meeting.
10 § 3535. Voting by stockholders and members.
11 At all meetings of the company, each share of stock in a
12 stock company and each member in a mutual company shall be
13 entitled to one vote. However, in the case of mutual companies,
14 other than mutual life companies, each member shall be entitled
15 to one vote or to a number of votes based upon the insurance in
16 force, the number of policies held or the amount of premiums
17 paid. Proxies may be authorized by written power of attorney.
18 The record of the votes made by the secretary, which shall show
19 whether the votes were cast in person or by proxy, shall be
20 evidence of all elections.
21 § 3536. Proxies issued by domestic stock companies.
22 (a) Regulation.--The commissioner may, by regulation,
23 prescribe the form, content and manner of solicitation of any
24 proxy, consent or authorization with respect to any voting
25 security issued by a domestic stock insurance company as
26 necessary or appropriate in the public interest or for the
27 proper protection of investors in the voting securities issued
28 by the insurance company or to insure the fair dealing in the
29 voting securities.
30 (b) Prohibition of solicitation.--No person or voting
19850H1962B2642 - 254 -
1 security holder and no domestic stock insurance company or any
2 director, officer or employee of that company shall solicit or
3 permit the use of his name to solicit any person to give any
4 proxy, consent or authorization with respect to any voting
5 security issued by the insurance company in contravention of any
6 rule or regulation the commissioner prescribes pursuant to this
7 section.
8 (c) Limitation of action.--Any action to enforce compliance
9 with any rule or regulation of the commissioner shall be taken
10 within 30 days after exercise of the proxy, consent or
11 authorization.
12 (d) Applicability.--This section does not apply to:
13 (1) Voting securities of a domestic stock insurance
14 company if the securities are registered under section 12 of
15 the Securities Exchange Act of 1934 (48 Stat. 892, 15 U.S.C.
16 § 781).
17 (2) Voting securities of a domestic stock insurance
18 company which, because of the number of its stockholders or
19 the distribution of its stock ownership, the commissioner, by
20 regulation, deems not necessary or appropriate to regulate in
21 the public interest or for the proper protection of investors
22 therein.
23 (e) Definition.--As used in this section the term "voting
24 security" means any instrument which, in law or by contract,
25 gives the holder the right to vote, or consent to or authorize
26 any corporate action of a domestic stock insurance company.
27 § 3537. Cumulative voting.
28 In all elections for directors or trustees of any stock or
29 mutual insurance company, each member or stockholder having a
30 right to vote may cast the whole number of his votes for one
19850H1962B2642 - 255 -
1 candidate or distribute them upon two or more candidates.
2 § 3538. Failure to elect directors or trustees.
3 If the stockholders or members of any insurance company fail
4 to elect directors or trustees at any annual meeting, the
5 directors or trustees may call a special meeting for that
6 purpose on a subsequent day. Notice of the meeting shall be
7 given as provided in section 3531(b) (relating to annual
8 meetings).
9 § 3539. Directors and trustees.
10 (a) Acceptance.--The directors or trustees, before they are
11 qualified to act, shall file with the secretary a written
12 acceptance of the trust.
13 (b) Quorum.--A majority of the directors or trustees shall
14 constitute a quorum.
15 (c) Compensation.--Any insurance company may allow and pay
16 to directors compensation for acting as directors.
17 SUBCHAPTER C
18 FUNDAMENTAL CHANGES
19 Sec.
20 3551. Stock votes on particular subjects.
21 3552. Amendment of charter.
22 3553. Proceedings to file amended charter and certification.
23 3554. Power to increase capital stock.
24 3555. Proceedings to increase capital stock.
25 3556. Records of increases of capital stock.
26 3557. Sale of increases of capital stock.
27 3558. Reduction of capital stock.
28 § 3551. Stock votes on particular subjects.
29 Whenever a stock vote is lawfully demanded or required on any
30 subject submitted to the stockholders of any stock insurance
19850H1962B2642 - 256 -
1 company of this Commonwealth for their action at any annual or
2 special meeting, the vote may be taken at and certified to the
3 meeting or any adjournment. If, under the corporate charter or
4 applicable law, the annual election for directors is held within
5 30 days after the annual or special meeting at which the subject
6 is be submitted to the stockholders, then the vote on the
7 subject may be taken at the same time and place, by the same
8 persons and in the same manner as the vote for directors of the
9 company is taken. If, under provisions of the charter or laws
10 governing the company, the annual election for directors is not
11 held within 30 days after the meeting at which the subject is
12 submitted to the stockholders, then the stock vote upon the
13 subject may be taken at any time within 30 days after that
14 meeting under the supervision of three judges to be appointed
15 and at a time and place to be designated by the stockholders at
16 that meeting. The result of the vote shall be certified by the
17 judges under oath and their certificates shall be filed with the
18 secretary of the company.
19 § 3552. Amendment of charter.
20 (a) Authorization.--Any domestic stock or mutual insurance
21 company may amend its charter for the purpose of changing its
22 name, changing the location of its principal office or place of
23 business, increasing or diminishing the par value of the shares
24 of its capital stock, changing its purpose or for any other
25 reason, by calling a special meeting of the stockholders or
26 members.
27 (b) Notice.--Notice of the object of the meeting shall be
28 given by advertisement for the preceding four weeks in at least
29 two daily or weekly newspapers and in the legal periodical, if
30 any, designated by the rules of court of the proper county for
19850H1962B2642 - 257 -
1 the publication of legal notices, published in the municipality
2 where the principal office of the company is located, or by
3 circular mailed to the address of each stockholder or member.
4 (c) Procedure.--If the resolution for the amendment is
5 approved by two-thirds of the votes cast, the resolution and the
6 number of votes cast for and against it shall be recorded by the
7 company and a certified copy of the record shall be forwarded to
8 the commissioner. If the commissioner approves of the
9 resolution, he shall certify his approval and record it in the
10 office of the Secretary of the Commonwealth and with the
11 recorder of deeds of the proper county. The amendment shall then
12 form part of the charter of the company.
13 (d) Mutual insurance company.--A mutual insurance company,
14 other than life or title, may amend its charter to include any
15 of the kinds of insurance included in section 3302(b) and (c)
16 (relating to authorized classes of insurance) if its total
17 assets, less net liability for losses for expenses and for
18 unearned premium reserve for those premiums received on
19 nonassessable policies, are not less than the minimum premiums
20 specified in section 3306(e) (relating to minimum capital stock
21 and financial requirements) for the incorporation of new
22 companies, without the necessity of obtaining or of holding any
23 application or of issuing any policy as specified in section
24 3306(e) for the incorporation of new companies.
25 (e) Amendment of charter by certain stock companies.--Before
26 any domestic stock fire, stock marine, stock fire and marine, or
27 stock casualty insurance company transacting business under
28 section 3302(b) or (c) may amend its charter for the transaction
29 of additional kinds or classes of business under section 3302(b)
30 or (c) or both, it shall have a paid-up capital and a paid-in or
19850H1962B2642 - 258 -
1 accumulated surplus in amounts required under section 3306(b) or
2 (c) for incorporation for its present and proposed additional
3 purposes.
4 § 3553. Proceedings to file amended charter and certification.
5 Whenever any domestic stock or mutual insurance company
6 amends its charter under section 3552 (relating to amendment of
7 charter) or to carry out a merger or consolidation or to
8 increase or decrease the amount of its capital, the stockholders
9 or members of the company may, at the time of adopting the
10 amendment or resolutions, include therein the entire charter of
11 the company, as amended or as affected by the proposed change.
12 The amended charter or consolidation proceedings shall
13 completely set forth all the terms and conditions of the charter
14 under which the company shall thereafter transact business.
15 However, the amended charter or consolidation proceedings shall
16 contain only those provisions an original charter may lawfully
17 contain and shall be filed in the office of the Secretary of the
18 Commonwealth, in the same manner as provided under section
19 3556(a) (relating to records of increases of capital stock),
20 3558(e) (relating to reduction of capital stock) or 3562(d)
21 (relating to proceedings to merge or consolidate).
22 § 3554. Power to increase capital stock.
23 The capital stock of any stock insurance company may, with
24 the consent of the persons holding more than one-half the value
25 of its stock, be increased to an amount, regardless of any
26 limitation upon the amount prescribed in any general or special
27 law regulating any such company, as it deems necessary to
28 accomplish and enlarge the business and purposes of the company.
29 § 3555. Proceedings to increase capital stock.
30 (a) General rule.--Any stock insurance company that desires
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1 to increase its capital stock shall, by resolution adopted by a
2 majority of its board of directors, declare this purpose and, by
3 resolution similarly adopted, direct that the question of the
4 proposed increase be submitted to the stockholders of the
5 corporation for their consent under subsection (b) or (c).
6 (b) Regular annual meeting.--The question may be submitted
7 to the stockholders at any regular meeting. Notice of the
8 meeting shall state that the question of a capital stock
9 increase will be considered at the meeting. The president and
10 secretary of the meeting shall ascertain, by any method, whether
11 the persons holding more than one-half the value of the stock of
12 the company have consented to the increase. Upon being so
13 satisfied, these officers shall certify in duplicate the fact,
14 under oath. If a stock vote is demanded at the meeting, these
15 officers shall cause a vote to be taken at the same time and
16 place, by the same persons and in the same manner as the vote
17 for directors of the company are taken.
18 (c) Special meeting.--The question may be submitted to the
19 stockholders at a special meeting. Notice of the time, place and
20 object the meeting shall be published in the manner prescribed
21 for the giving of notice of the regular annual meeting. At the
22 meeting a vote of the stockholders shall be taken for or against
23 the increase. The vote shall be conducted by three judges, who
24 shall be stockholders of the company, appointed by the board of
25 directors to hold the vote. If any judge is absent, the judges
26 present shall appoint a replacement. The judges shall swear that
27 they will conduct the vote according to law and to the best of
28 their ability. The company shall furnish the judges at the
29 meeting with a statement of the amount of its capital stock, the
30 names of the persons holding the stock and the number of shares
19850H1962B2642 - 260 -
1 held by each, which statement shall be signed and sworn to by
2 one of the chief officers of the company. The judges shall
3 decide upon the qualifications of voters, count the number of
4 shares voted for and against the increase and declare whether
5 the persons holding a majority in amount of the stock of the
6 corporation have consented to the increase. They shall complete
7 duplicate returns of the vote stating the number of shares of
8 stock that voted for and against the increase and subscribe and
9 deliver the returns to one of the chief officers of the company.
10 (d) Ballot.--Each ballot shall have endorsed on it the
11 number of shares represented, but no shares transferred within
12 30 days prior to the meeting shall entitle the holder to vote on
13 the capital stock increase. A proxy shall not be received nor
14 shall the holder be entitled to vote unless the proxy has been
15 executed within four months preceding the meeting.
16 § 3556. Records of increases of capital stock.
17 (a) Filing with Secretary of Commonwealth.--If consent is
18 given to a capital stock increase, the company shall file in the
19 office of the Secretary of the Commonwealth, within 30 days
20 after the vote, one copy each of the certificates of the
21 president and secretary of the annual meeting or one copy of the
22 return completed at the special meeting, with a copy of the
23 resolution and the meeting notice. Thereafter, the increase may
24 be made at such time or times as the directors determine. The
25 Secretary of the Commonwealth shall furnish a certified copy of
26 the proceedings to the commissioner.
27 (b) Bonus.--Upon the actual increase of the capital stock or
28 indebtedness of a company, the president or treasurer of the
29 company shall within 30 days make a return to the Secretary of
30 the Commonwealth and to the commissioner, under oath, of the
19850H1962B2642 - 261 -
1 amount of the increase actually made. The company shall pay to
2 the State Treasurer, for the use of the Commonwealth, a bonus on
3 the actual increase shown by the return as prescribed by law.
4 The Secretary of the Commonwealth shall not permit the filing in
5 his office of any proceedings for the increase of capital stock
6 until the bonus is paid.
7 (c) Penalty.--In case of neglect or omission to make the
8 return, a company shall be subject to a penalty of $5,000, in
9 addition to the bonus. The penalty shall be collected on an
10 account settled by the Auditor General and State Treasurer, in
11 the same manner as accounts for taxes due the Commonwealth are
12 settled and collected. The Secretary of the Commonwealth shall
13 record the return and furnish a copy of the return to the
14 Auditor General.
15 § 3557. Sale of increases of capital stock.
16 (a) Subscription.--Any increase of capital stock made by any
17 stock insurance company may be issued at such price not less
18 than par as the stockholders may direct or as the board of
19 directors may direct under authority conferred by the
20 stockholders. Unless otherwise provided in the charter or
21 articles of agreement, each stockholder shall have the right to
22 first subscribe for the new shares in proportion to his interest
23 in the company.
24 (b) Exchange.--A stockholder shall not have the right to
25 first subscribe for new shares if the stockholders holding more
26 than one-half the value of the stock of the company direct,
27 subject to such equitable regulations as the directors
28 prescribe, that the new shares are to be issued in exchange for
29 one or more outstanding shares of another insurance company in
30 which the issuing company is authorized to invest, or partly in
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1 exchange and partly for cash.
2 (c) Approval of exchange by commissioner.--The commissioner
3 shall examine the terms and conditions of any exchange described
4 in subsection (b) and, after holding a hearing at which all
5 persons to whom it is proposed to issue shares in exchange shall
6 have the right to appear, shall approve or disapprove the
7 fairness of the terms and conditions.
8 (d) Notice of right to subscribe.--Except when an exchange
9 described in subsection (b) is to be effected, notice to the
10 stockholders to exercise their rights to subscribe for and to
11 take the stock at the price so fixed shall be mailed to each
12 stockholder, at the last address of the stockholder appearing on
13 the books or records of the company, 30 days prior to the date
14 fixed by the board of directors for the expiration of the right
15 to subscribe. This notice shall also be given by publication
16 once a week for three weeks in a newspaper of general
17 circulation published in the municipality in which the company
18 has its principal office.
19 (e) Sale of unsubscribed stock.--Any stock not subscribed
20 for and taken by the stockholders may be sold and disposed of by
21 the board of directors, in such manner as the stockholders
22 direct. However, the stock shall not be sold or disposed of at a
23 price less than that originally fixed by the stockholders.
24 (f) Issuance to officers or employees.--Notwithstanding
25 anything in this section to the contrary, any stock insurance
26 company may issue to its officers or employees, to the officers
27 or employees of any subsidiary corporation or to a trustee on
28 their behalf, the number of its authorized but unissued shares
29 prescribed by the stockholders having the majority interest.
30 These shares shall be issued at such times and such manner as
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1 the board of directors determines. Any stock authorized to be
2 issued to officers or employees and not taken by those entitled
3 to it may be sold and disposed of in such manner the board of
4 directors determines.
5 § 3558. Reduction of capital stock.
6 (a) General rule.--The capital stock of any stock insurance
7 company may be reduced at any time by the consent of the persons
8 holding more than one-half the value of the stock of the
9 company. However, this reduction shall not be below the minimum
10 amount of capital stock required by law for the formation of
11 such companies.
12 (b) Meeting.--Any stock insurance company that desires to
13 reduce its capital stock shall, by a resolution of its board of
14 directors, call a meeting of its stockholders. The meeting shall
15 be held at its chief office or place of business in this
16 Commonwealth. Notice of the time, place and object of the
17 meeting shall be given in the manner prescribed for the giving
18 of notice of the regular annual meeting.
19 (c) Voting procedure.--At the meeting a vote of the
20 stockholders of the company shall be taken on the question of
21 the reduction. The vote shall be conducted by three judges, who
22 shall be stockholders of the company, appointed by the board of
23 directors to hold the vote. If any judge is absent, the judges
24 present shall appoint a replacement. The judges shall swear that
25 they will conduct the vote according to law and to the best of
26 their ability. The company shall furnish the judges at the
27 meeting with a statement of the amount of its capital stock,
28 with the names of the persons holding the stock and the number
29 of shares held by each, which statement shall be signed and
30 sworn to by one of the chief officers of the company. The judges
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1 shall decide upon the qualification of voters, count the number
2 of shares voted for and against the reduction and declare
3 whether the persons holding more than one-half the value of the
4 stock of the company have consented to the reduction. They shall
5 complete duplicate returns of the vote, stating the number of
6 shares of stock that voted for and against the reduction, and
7 subscribe and deliver the returns to one of the chief officers
8 of the company.
9 (d) Stock entitled to vote.--Each ballot shall have endorsed
10 on it the number of shares represented, but no shares
11 transferred within 60 days prior to the meeting shall entitle
12 the holder to vote on the capital stock reduction. A proxy shall
13 not be received nor shall the holder be entitled to vote unless
14 it has been executed within three months preceding the meeting.
15 (e) Filing, approval and recording of proceedings.--If
16 consent is given to the reduction, the company shall file in the
17 office of the commissioner within 30 days after the vote one
18 copy each of the resolution, the meeting notice and the return.
19 The commissioner shall, if he finds the transaction regular in
20 form and consistent with the interest of the policyholders and
21 creditors, endorse his approval and file it in the office of the
22 Secretary of the Commonwealth. Upon the reduction of the capital
23 stock of the company, the president or treasurer of the company
24 shall file, within 30 days, a return with the commissioner and
25 the Secretary of the Commonwealth, under oath, stating the
26 amount of the reduction.
27 (f) Penalty.--In case of neglect or omission to timely file
28 the documents listed in subsection (e), the company shall be
29 subject to a penalty of $5,000. This penalty shall be collected
30 on an account settled by the Auditor General and State
19850H1962B2642 - 265 -
1 Treasurer, in the same manner as accounts for taxes due the
2 Commonwealth are settled and collected. The Secretary of the
3 Commonwealth shall record the return and furnish a certified
4 copy of the return to the Auditor General. The company shall,
5 after the receipt of the return from the Secretary of the
6 Commonwealth, have it recorded in the office of the recorder of
7 deeds of the county in which the company has its principal
8 office.
9 SUBCHAPTER D
10 MERGER, CONSOLIDATION AND VOLUNTARY DISSOLUTION
11 Sec.
12 3561. Power to merge or consolidate.
13 3562. Proceedings to merge or consolidate.
14 3563. Dissenters' rights upon merger or consolidation.
15 3564. Merger of domestic and foreign insurance companies.
16 3565. Protection of competition.
17 3566. Merger by acquisition of stock.
18 3567. Dissenters' rights upon merger by acquisition of stock.
19 3568. Approval of acquisitions by commissioner.
20 3569. Holding company systems.
21 3570. Voluntary dissolution.
22 3571. Dissolution for failure to do business.
23 § 3561. Power to merge or consolidate.
24 Any two or more domestic stock insurance companies and any
25 two or more domestic mutual insurance companies transacting the
26 same or similar classes of insurance may be merged into one of
27 such domestic companies or consolidated into a new company to be
28 formed as provided in the consolidation agreement. The
29 consolidation agreement shall include all of the statements
30 required by section 3303 (relating to articles of agreement) to
19850H1962B2642 - 266 -
1 be set forth in original articles of incorporation in the case
2 of the formation of a new insurance company, so that all the
3 property, rights, franchises and privileges vested in any of the
4 companies so merged or consolidated shall be transferred to and
5 vested in the surviving or new company. This section does not
6 permit the merging or consolidating of a stock insurance company
7 with a mutual insurance company.
8 § 3562. Proceedings to merge or consolidate.
9 (a) Joint agreement.--The directors or trustees of each
10 company shall enter into a joint agreement, under the corporate
11 seal of each company, for the merger or consolidation of the
12 companies. The agreement shall prescribe:
13 (1) The terms and conditions of the merger or
14 consolidation.
15 (2) The mode of carrying it into effect.
16 (3) The name of the surviving or new company.
17 (4) The number and names of the directors or trustees
18 and other officers thereof, and who shall be the directors or
19 trustees and officers, and their places of residence.
20 (5) The number of shares of the capital stock, if any.
21 (6) The amount of par value of each share.
22 (7) The manner of converting the capital stock of each
23 of the companies into the stock of the surviving or new
24 company.
25 (8) How and when directors or trustees and officers
26 shall be chosen.
27 (9) Any other details necessary to perfect the merger or
28 consolidation.
29 The agreement shall not be effective unless it is approved by
30 the stockholders or members of the companies under subsection
19850H1962B2642 - 267 -
1 (b) or (c).
2 (b) Stock companies.--The agreement shall be submitted to
3 the stockholders of each of the stock companies at separate
4 special meetings or at any annual meetings. Notice of the time,
5 place and object of each meeting shall be given by publication
6 once a week for three consecutive weeks in at least two
7 newspapers in the county in which the principal office of the
8 company is located. At each meeting the agreement of the
9 directors or trustees shall be considered, and a vote by ballot
10 of the stockholders, in person or by proxy, shall be taken. If a
11 majority in interest of the entire capital stock of each of the
12 companies votes in favor of the agreement, then the result shall
13 be certified by the secretary of each company under the
14 corporate seal thereof. The certificates and a copy of the
15 agreement shall be filed in the office of the commissioner. The
16 commissioner shall examine the proceedings, and, if he finds
17 that the proceedings were in accordance with law and not
18 injurious to the interests of the policyholders and creditors,
19 he shall endorse his approval and immediately forward the
20 certificates and agreement to the Governor for his approval.
21 Upon approval by the Governor, the agreement shall be deemed to
22 be the act of merger or consolidation of the surviving or new
23 company.
24 (c) Mutual companies.--The agreement shall be submitted to
25 the members of each of the mutual companies at separate special
26 meetings or at any annual meetings. Notice of the time, place
27 and object of each meeting shall be given by publication once a
28 week for three consecutive weeks in at least two newspapers in
29 the county in which the principal office of the company is
30 located; additional 30 days' notice of the time, place and
19850H1962B2642 - 268 -
1 object of the meeting shall be given by first class mail to all
2 members of each company, requesting them to vote in person or by
3 proxy on the agreement. The notice shall be mailed by the
4 company to the last known address of the members on the records
5 of the company. At each meeting the agreement of the directors
6 or trustees shall be considered, and a vote by ballot of the
7 members, in person or by proxy, shall be taken. If two-thirds of
8 the amount of the members of each company who are present at the
9 meeting in person or by proxy vote in favor of the agreement of
10 merger or consolidation, then the result shall be certified by
11 the secretary of each company under the corporate seal. The
12 certificate and a copy of the agreement shall be filed in the
13 office of the commissioner. The commissioner shall examine the
14 proceedings. If he finds that the proceedings were in accordance
15 with law and not injurious to the interests of the policyholders
16 and creditors, he shall endorse his approval and immediately
17 forward the certificates and agreement to the Governor for his
18 approval. Upon approval by the Governor, the agreement shall be
19 deemed to be the act of merger or consolidation of the surviving
20 or new company.
21 (d) Filing, approval and recording of documents.--The
22 Governor, upon the approval of the certificates and agreement,
23 shall issue letters patent. The letters patent, the certificates
24 and a copy of the agreement shall be filed and recorded in the
25 office of the Secretary of the Commonwealth. A certified copy of
26 the certificates and agreement so filed in the office of the
27 Secretary of the Commonwealth shall be evidence of the lawful
28 holding and action of the meetings and of the merger or
29 consolidation of the companies. Upon the issuance of the letters
30 patent by the Governor, the entire proceeding shall also be
19850H1962B2642 - 269 -
1 recorded in the office of the recorder of deeds of the proper
2 county. When so recorded, the merger or consolidation shall be
3 deemed to have taken place with the companies to be one company
4 under the name adopted under the agreement, possessing all the
5 rights, privileges and franchises vested in each of them. All
6 the real and personal property and rights of action of each
7 company shall be deemed transferred to the surviving or new
8 company without any further act or deed.
9 (e) Rights of creditors and lienholders.--All rights of
10 creditors and all liens upon the property of each company shall
11 continue unimpaired, limited in lien to the property affected by
12 the liens at the time of their creation. The respective
13 constituent companies may be deemed to be in existence to
14 preserve those liens. All debts not of record, duties and
15 liabilities of each of the constituent companies shall attach to
16 the surviving or new company and may be enforced against it to
17 the same extent, and by the same process, as if the debts,
18 duties and liabilities had been contracted by it.
19 § 3563. Dissenters' rights upon merger or consolidation.
20 (a) Petition to appraise damages.--Any stockholder or member
21 of any insurance company who objects to the merger or
22 consolidation and who voted against it at the appropriate
23 meeting may, within 30 days after the adoption of the agreement
24 and upon reasonable notice to the company, petition the court of
25 the county in which the chief office of the company is located
26 to appoint three disinterested persons to appraise the damages
27 caused him by the merger or consolidation. Upon the petition,
28 the court shall make the appointment, and the award of the
29 persons so appointed, or of a majority of them, when confirmed
30 by the court, shall be final and conclusive.
19850H1962B2642 - 270 -
1 (b) Appraisal of shares or interest.--The persons so
2 appointed shall also appraise the shares of the stockholder or
3 the interest of the member in the company at full market value
4 without regard to any appreciation or depreciation in
5 consequence of the merger or consolidation. This appraisal, when
6 confirmed by the court, shall be final and conclusive.
7 (c) Election of company.--The company may pay to the
8 stockholder or member either the amount of damages awarded or
9 the value of the stock or interest ascertained. Upon the payment
10 of the value of the stock, the stockholder shall transfer the
11 stock held by him to the company, to be disposed of by the
12 directors or to be retained for the benefit of the other
13 stockholders. Upon the payment of the value of any interest of
14 any member, the interest of the member in the company shall
15 cease. In case the value of the stock or interest is not paid
16 within 30 days after the award is confirmed by the court, the
17 damages found and confirmed shall be a judgment against the
18 company.
19 § 3564. Merger of domestic and foreign insurance companies.
20 (a) Authority to merge.--Any domestic life, fire or marine
21 insurance company or casualty or surety company authorized to do
22 business under this title may merge or consolidate, as provided
23 in this section, with a company organized under the laws of
24 another state if the merger or consolidation is authorized by
25 the laws or approved by the insurance supervising officials of
26 the state in which the foreign company is incorporated.
27 (b) Domestic company.--A domestic company shall comply with
28 all the requirements of this chapter with respect to the merger
29 or consolidation of two or more domestic companies.
30 (c) Foreign company.--The foreign company shall comply with
19850H1962B2642 - 271 -
1 all of the requirements of the law or of the supervising
2 insurance officials of the state under which it is incorporated
3 with respect to such a merger or consolidation. The agreement
4 shall first be submitted for approval by the commissioner.
5 (d) Domicile of surviving company.--The domicile of the
6 surviving or new company shall be located in this Commonwealth,
7 unless the commissioner consents, in writing endorsed on the
8 merger or consolidation agreement, that the merged or
9 consolidated company may be domiciled in some other state.
10 (e) Foreign surviving company.--A merged or consolidated
11 company, domiciling in another state, shall not have any
12 authority to transact business in this Commonwealth unless the
13 company complies with the law of this Commonwealth with respect
14 to its admission to transact business here. In any case, the
15 merged or consolidated company shall designate in writing the
16 commissioner as the true and lawful attorney of the corporation
17 for purpose of service of process in any proceeding against it
18 for enforcement of any obligation of any corporation
19 participating in the merger or consolidation, or any obligation
20 arising from the merger or consolidation proceedings or any
21 action or proceeding to determine and enforce the rights of any
22 stockholder or member under section 3563 (relating to
23 dissenters' rights upon merger or consolidation). The company
24 shall enter into an agreement with the commissioner that service
25 of process on the commissioner shall be of the same legal force
26 and validity as if served upon the corporation and that the
27 authority for such service of process shall continue in force as
28 long as any of these obligations and rights remain outstanding
29 in this Commonwealth.
30 (f) Effective date of agreement.--The agreement and the
19850H1962B2642 - 272 -
1 certificate of the secretaries, with the approval of the
2 commissioner endorsed on the agreement, shall be filed with the
3 commissioner, and a duplicate or certified copy of the agreement
4 and the certificate shall be filed with the recorder of deeds of
5 the county where the office of any domestic merged or
6 consolidated company is located. Upon such filing, the agreement
7 shall become effective.
8 (g) Substituted certificates.--If the merger or
9 consolidation involves a stock company, the surviving or new
10 company may require the return of the original certificates of
11 stock held by each stockholder in each of the companies to be
12 merged or consolidated and issue new certificates for the number
13 of shares of its own stock that the stockholders may be entitled
14 to receive.
15 (h) Effect of a merger or consolidation.--Upon a merger or
16 consolidation, all the rights, franchises and interests of the
17 companies so merging or consolidating in any property belonging
18 to them shall be deemed to be transferred to and vested in the
19 surviving or new company without any other deed or transfer. The
20 surviving or new company shall succeed to all the obligations
21 and liabilities of the old companies and shall be held liable to
22 pay and discharge all debts and liabilities in the same manner
23 as if they had been incurred or contracted by it. The
24 stockholders or members of the old companies shall continue,
25 subject to all the liabilities, claims and demands existing
26 against them at or before the merger or consolidation. An action
27 or proceeding pending at the time of merger or consolidation, in
28 which any or all of the old companies may be a party, shall not
29 abate or discontinue by reason of the merger or consolidation;
30 any such action or proceeding may be prosecuted to final
19850H1962B2642 - 273 -
1 judgment in the same manner as if the merger or consolidation
2 had not taken place, or the surviving or new company may be
3 substituted in place of any company so merged or consolidated by
4 order of the court in which the action or proceeding is pending.
5 § 3565. Protection of competition.
6 (a) Holding capital stock of other companies.--Any domestic
7 insurance company may retain or acquire the whole or any part of
8 the capital stock of any other insurance company; however, no
9 insurance company shall, by reason of this retention or
10 acquisition of capital stock, conduct its business in a manner
11 which substantially lessens competition or tends to create a
12 monopoly. Any retention or acquisition shall comply with the
13 provisions of this title relating to the investment of the funds
14 of domestic insurance companies.
15 (b) Interlocking directorates.--Any person otherwise
16 qualified may be a director of two or more insurance companies
17 when this interlocking directorate is not used as a means of
18 substantially lessening competition or tending to create a
19 monopoly.
20 (c) Enforcement proceedings.--Whenever the commissioner has
21 reason to believe that there is a violation of subsection (a) or
22 (b), he shall serve upon the insurance company, or the director
23 concerned, a complaint setting forth the facts alleged to
24 constitute the violation. With the complaint, there shall be
25 notice in writing of a time and place of a hearing before the
26 commissioner. The hearing shall not be held less than 30 days
27 after the service of the complaint. The complaint shall require
28 the insurance company or director to show cause why an order
29 should not be made by the commissioner directing the insurance
30 company or director to cease and desist from the violation. The
19850H1962B2642 - 274 -
1 hearing shall be conducted, and the decision of the commissioner
2 on the issue involved shall be rendered, in accordance with the
3 provisions of 2 Pa.C.S. Ch. 5 Subch. A (relating to practice and
4 procedure of Commonwealth agencies).
5 (d) Order.--If, after the hearing, the commissioner finds
6 that there has been such a violation, he shall issue and serve
7 upon the insurance company or director an order reciting the
8 facts found by him, setting forth the violation, directing the
9 insurance company or director to cease and desist from the
10 violation.
11 (e) Divestiture.--This section does not authorize any order,
12 judgment or decree directing any domestic insurance company to
13 divest itself of the capital stock of another insurance company.
14 § 3566. Merger by acquisition of stock.
15 (a) General rule.--Any business or insurance corporation
16 seeking to acquire, in exchange for shares of its capital stock,
17 other securities, cash or other consideration, all of the shares
18 of the capital stock of any insurance company organized under
19 the law of this Commonwealth, may elect to acquire those shares
20 as provided in this section.
21 (b) Acquiring corporation not 90% owner.--If the acquiring
22 corporation does not own, directly or indirectly, at least 90%
23 of the aggregate issued and outstanding shares of all classes of
24 voting stock of the company to be acquired, the boards of
25 directors, trustees or other governing bodies of the acquiring
26 corporation and the corporation to be acquired shall by
27 resolution approve a proposed exchange offer. The proposed offer
28 shall specify the stock or classes of stock to be acquired, the
29 terms and conditions of the offer, the method of acceptance and
30 the procedure to be followed to effect the exchange. It may fix
19850H1962B2642 - 275 -
1 or provide for the fixing of record dates for the determination
2 of stockholders to whom offers, notices and other communications
3 shall be mailed, and it may provide for the determination of
4 stockholders who shall be entitled to exercise rights under this
5 subchapter.
6 (c) Acquiring corporation 90% owner.--Where the acquiring
7 corporation owns, directly or indirectly, 90% of the aggregate
8 issued and outstanding shares of all classes of voting stock of
9 the acquired corporation, the board of directors, trustees or
10 other governing body of the acquiring corporation may, by
11 resolution, adopt a plan for the acquisition of minority
12 interests in the corporation to be acquired. The plan shall set
13 forth:
14 (1) The name of the corporation to be acquired.
15 (2) The total number of issued and outstanding shares of
16 each class of voting stock of the corporation to be acquired,
17 the number of its shares owned by the acquiring corporation
18 and, if either of the foregoing is subject to change prior to
19 the effective date of acquisition, the manner in which any
20 change may occur.
21 (3) The terms and conditions of the plan, including the
22 manner and basis of exchanging the shares to be acquired, the
23 proposed effective date of acquisition and a statement
24 clearly describing the rights of dissenting stockholders to
25 demand appraisal.
26 (4) If the acquiring corporation is neither a domestic
27 corporation nor an insurer authorized to do business in this
28 Commonwealth, its agreement to be bound by subsection (j) and
29 section 3567 (relating to dissenters' rights upon merger by
30 acquisition of stock) with respect to the plan, its consent
19850H1962B2642 - 276 -
1 to the enforcement against it in this Commonwealth of the
2 rights of stockholders pursuant to the plan and a designation
3 of the commissioner as the agent upon whom process may be
4 served against the acquiring corporation under 42 Pa.C.S. §
5 5323 (relating to service of process on persons outside this
6 Commonwealth) in any action or proceeding to enforce any such
7 rights.
8 (5) Such other provisions with respect to the plan as
9 the board of directors, trustees or other governing body
10 believes necessary or desirable or as the commissioner
11 prescribes.
12 (d) Submission of proposal.--The acquiring corporation shall
13 submit the terms and conditions of the proposed offer or plan to
14 the commissioner for his approval. The commissioner shall hold a
15 hearing upon at least ten days' notice to all stockholders of
16 the corporation to be acquired any of whom may appear. At the
17 hearing, the commissioner shall either approve or disapprove the
18 terms and conditions. If the terms and conditions are approved
19 by the commissioner, the acquiring corporation shall submit by
20 mail a written offer or plan of acquisition to the stockholders
21 of the corporation to be acquired, addressed to each stockholder
22 at his address of record.
23 (e) Corporate acceptance.--If prior to the termination date
24 of an exchange offer under subsection (b) or any extension
25 thereof, which shall be no later than 120 days after the date of
26 the initial mailing of the offer, the offer is accepted by the
27 holders of not less than the percentage of the outstanding
28 shares of capital stock specified in the terms and conditions of
29 the proposed offer, which shall be at least 80% of the total
30 combined voting power of all classes of stock entitled to vote
19850H1962B2642 - 277 -
1 and 80% of the total number of shares of all other classes of
2 stock, the acquiring corporation shall, within 150 days after
3 the date of the initial mailing, notify the corporation to be
4 acquired of the acceptance and furnish to the acquired
5 corporation a list of all stockholders who accepted the offer
6 and of the numbers and classes of shares covered by their
7 respective acceptances. Thereupon, the acquiring corporation
8 shall automatically become the holder of all shares of all
9 classes of capital stock of the corporation to be acquired
10 included in the list, except to the extent that it has notified
11 the corporation to be acquired that shares are to be issued to
12 specified persons in order to qualify them or to maintain their
13 qualification as directors of the corporation to be acquired.
14 Certificates representing all outstanding shares of capital
15 stock of the corporation to be acquired included in this list
16 shall immediately be issued to the acquiring corporation and
17 those persons it has specified. The formerly outstanding
18 certificates shall represent only the right to receive shares of
19 capital stock or other securities of the acquiring corporation,
20 cash, other consideration or a combination thereof as specified
21 in the offer.
22 (f) Notice of dissenters' rights.--Within 30 days after the
23 notification from the acquiring corporation, the corporation to
24 be acquired shall notify by mail each of its stockholders who
25 has not accepted the offer that, subject to subsections (g) and
26 (j) and section 3567, a copy of which shall be included with the
27 notice, the stockholder may receive payment in cash of the full
28 market value of his shares and may not vote, receive dividends
29 or other distributions or exercise any rights with respect to
30 these shares other than those set forth in subsections (g) and
19850H1962B2642 - 278 -
1 (j) and section 3567.
2 (g) Deemed stockholder acceptances.--A stockholder who does
3 not otherwise accept an exchange offer described under
4 subsection (b) shall be deemed to have accepted it if, following
5 the mailing of the notice under subsection (f), any of the
6 following conditions occur:
7 (1) He fails to make written demand as provided in
8 section 3567(a).
9 (2) He fails to surrender his certificate for notation
10 as provided in section 3567(b) unless the corporation to be
11 acquired waives this failure or relief from the failure is
12 granted by the court of the county in which the chief office
13 of the corporation to be acquired is located.
14 (3) The full market value of his shares not having been
15 agreed upon as provided in section 3567(c), he fails to
16 comply with the provisions thereof with respect to the filing
17 of a petition for the appointment of appraisers and the
18 corporation to be acquired does not waive this failure.
19 The acquiring corporation shall automatically become the holder
20 of all shares of all classes of capital stock of the corporation
21 to be acquired held by any stockholder who is deemed to have
22 accepted the exchange offer under this subsection.
23 (h) Certification to commissioner.--On or before the date of
24 acquisition proposed in a plan adopted pursuant to subsection
25 (c), the acquiring corporation shall file with the commissioner
26 a certificate stating that it has submitted the written offer or
27 plan of acquisition to the stockholders of the corporation to be
28 acquired, as required by subsection (d). This certificate shall
29 be executed by the president of the acquiring corporation and
30 attested by its secretary or other corresponding executive
19850H1962B2642 - 279 -
1 officers.
2 (i) Ownership of acquired shares.--Upon compliance with this
3 subsection and with subsections (a), (c), (d) and (j) and
4 section 3567, ownership of the shares to be acquired pursuant to
5 the plan shall vest in the acquiring corporation on the date of
6 acquisition proposed in the plan whether or not the certificates
7 for the shares have been surrendered for exchange. The acquiring
8 corporation may have new certificates registered in its name,
9 except to the extent it has notified the acquired corporation
10 that shares are to be issued to specified persons in order to
11 qualify them or to maintain their qualification as directors of
12 the acquired corporation. Stockholders whose shares have been so
13 acquired shall retain only the right to receive the
14 consideration to be paid in exchange for their shares pursuant
15 to the plan or to demand appraisal pursuant to section 3567.
16 (j) Distribution of stock shares and consideration.--If the
17 acquiring corporation has notified the acquired corporation of
18 the acceptance of an exchange offer made under subsection (b) of
19 if a plan has been adopted pursuant to subsection (c), on or
20 after the date of acquisition proposed in the plan, the
21 acquiring corporation shall issue, in the name of each
22 stockholder who has accepted the offer or who has not made
23 timely demand for appraisal, certificates for the shares of its
24 capital stock or other securities as provided in the exchange
25 offer or plan, or shall set aside the cash or other
26 consideration to which he is entitled. The certificates, cash or
27 other consideration shall be delivered to the stockholder if he
28 has surrendered the certificates for his shares of the acquired
29 corporation for exchange and shall otherwise be held in trust
30 for delivery to the stockholder upon surrender of the
19850H1962B2642 - 280 -
1 certificates.
2 § 3567. Dissenters' rights upon merger by acquisition of stock.
3 (a) Written demand for redemption.--A stockholder of the
4 acquired corporation who wishes to be paid the full market value
5 of his shares shall make written demand for this payment upon
6 the corporation to be acquired in the case of an exchange offer
7 made pursuant to section 3566(b) (relating to merger by
8 acquisition of stock) within 30 days after the mailing of the
9 notice by the corporation to be acquired, or in the case of a
10 plan adopted pursuant to section 3566(c) within 30 days after
11 the mailing of the plan of acquisition by the acquiring
12 corporation pursuant to section 3566(d). A stockholder may
13 demand payment as to all or less than all of those shares
14 registered in his name of which he is not the beneficial owner,
15 but demand may not be made with respect to some but less than
16 all shares of the same class owned by any given beneficial owner
17 of shares, whether or not the shares so owned by him are
18 registered in his name.
19 (b) Notation on share certificates.--Within 20 days after
20 demanding payment for his shares, each stockholder demanding
21 payment shall submit the certificate representing his share to
22 the corporation to be acquired for notation that a demand has
23 been made. If a share represented by a certificate on which
24 notation has been so made is transferred, each new certificate
25 issued for the share shall bear a similar notation, together
26 with the name of the original holder of the share who demanded
27 payment. The transferee of the share shall acquire by the
28 transfer no rights other than those which the stockholder who
29 demanded payment had after making demand for payment of the full
30 market value.
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1 (c) Appraisal procedure.--Any stockholder of the acquired
2 corporation who has not accepted the exchange offer and is not
3 deemed to have accepted it or who has made timely demand for
4 appraisal under subsection (a) may receive payment for his
5 shares of capital stock of the acquired corporation as provided
6 in this subsection. If, within 40 days after making demand under
7 subsection (a), the stockholder and the acquired corporation
8 have not agreed as to the full market value of the shares, the
9 stockholder may, within 60 days after making the demand,
10 petition the court of the county in which the chief office of
11 the acquired corporation is located to appoint three
12 disinterested persons to appraise the shares of the stockholder
13 at the full market value. The appraisal shall be made as of the
14 day prior to the day on which the exchange offer or plan of
15 acquisition was mailed, without regard to any appreciation or
16 depreciation in consequence of the exchange offer or plan of
17 acquisition. The appraisal, when confirmed by the court, shall
18 be final and conclusive. The full market value of the shares as
19 agreed upon or as so determined shall be paid by the acquired
20 corporation to the stockholder upon surrender to the acquired
21 corporation of his certificates for the shares. The acquired
22 corporation may retain, cancel, dispose of or take other action
23 with respect to the shares. However, there shall be no reduction
24 in the capital stock of the acquired corporation without
25 compliance with other applicable provisions of law, and the
26 acquired corporation may not vote these shares.
27 (d) Reimbursement of shareholder.--Any stockholder who has
28 had his shares of stock appraised and the appraisal confirmed
29 shall be reimbursed by the acquiring corporation, in an amount
30 not in excess of $10,000, for his reasonable expenses, including
19850H1962B2642 - 282 -
1 attorney fees, in obtaining the appraisal, if the amount of the
2 appraisal exceeds by 10% the value of the securities, cash or
3 other consideration the stockholder would have received under
4 the terms of the offer or plan. For the purpose of determining
5 if a shareholder is entitled to reimbursement for his expenses,
6 the value of the securities which the shareholder would have
7 received under the term of the offer or plan shall be deemed to
8 be their average market value on the initial mailing date of an
9 offer or on the effective date of acquisition as set forth in a
10 plan.
11 (e) Exclusive rights and remedies.--Any stockholder who
12 desires to object to or dissent from any proposed exchange
13 authorized under section 3566 shall be limited to the rights and
14 remedies provided in this section.
15 § 3568. Approval of acquisitions by commissioner.
16 (a) Applicability of requirements.--Without first complying
17 with all applicable provisions of this section:
18 (1) A person shall not, directly or indirectly through
19 an intermediary or otherwise, acquire or offer to acquire
20 beneficial ownership of insurance stock or insurance holding
21 company stock if the acquisition, together with any past or
22 proposed acquisitions from others, would cause the person to
23 have beneficial ownership of more than 10% of the outstanding
24 insurance stock or insurance holding company stock of any
25 class of any issuer.
26 (2) A person who beneficially owns 10% or more of the
27 outstanding insurance stock or insurance holding company
28 stock of any class of any issuer shall not, directly or
29 indirectly through an intermediary or otherwise, increase or
30 attempt to increase his beneficial ownership of stock of the
19850H1962B2642 - 283 -
1 class by acquisition of additional stock of the class.
2 (3) A person shall not, directly or indirectly through
3 an intermediary or otherwise, acquire or offer to acquire
4 beneficial ownership of insurance stock or insurance holding
5 company stock pursuant to a plan whereby he would become the
6 beneficial owner of more than 10% of the outstanding
7 insurance stock or insurance holding company stock of any
8 class of any issuer. However, in a case where it is proposed
9 to acquire or offer to acquire beneficial ownership of
10 insurance holding company stock and neither the insurance
11 holding company nor any affiliate which it controls are
12 incorporated under the law of this Commonwealth, the
13 restrictions set forth in this paragraph shall apply only if
14 those to whom an offer to acquire the insurance holding
15 company stock is to be made include one or more residents of
16 this Commonwealth.
17 (b) Filing of statement with commissioner.--There shall be
18 filed with the commissioner a statement, signed and verified by
19 the person proposing to make the acquisition, which shall
20 contain the information specified in this subsection and copies
21 of all material proposed to be used in connection with the offer
22 or acquisition, which shall set forth the information contained
23 in the statement filed with the commissioner. Copies of the
24 statement and material shall simultaneously also be sent by
25 registered mail to the issuer of the insurance stock or
26 insurance holding company stock proposed to be acquired. The
27 statement filed with the commissioner shall be filed on a form
28 prescribed by the commissioner and shall contain the following
29 information and such additional information as the commissioner
30 requires by regulation:
19850H1962B2642 - 284 -
1 (1) The name and address of each person who proposes to
2 acquire or offer to acquire insurance stock or insurance
3 holding company stock.
4 (2) If the person is an individual, his principal
5 occupation during the past five years.
6 (3) If the person is not an individual, a description of
7 the business done and intended to be done by the person and
8 the person's subsidiaries and the general development of the
9 business during the past five years.
10 (4) If the person is not an individual, a list of all
11 its directors or executive officers or those who perform
12 similar functions and all persons who have been chosen to
13 hold such positions. The list shall include all positions and
14 offices held by the persons named in the particular
15 organization and their principal occupations during the past
16 five years.
17 (5) The terms and conditions of any proposed offer and
18 acquisition and the manner in which the offer and acquisition
19 are to be made.
20 (6) The source of the funds to be used in the proposed
21 acquisition and, if the funds are to be borrowed, the name of
22 the lender and a summary of the terms and conditions of the
23 loan transactions.
24 (7) Any plans which the person has for the future
25 business and management of the issuer whose capital stock is
26 to be acquired and, if the issuer is an insurance holding
27 company, of any prospective subsidiary including any plans
28 with respect to total or partial liquidation, sale of assets,
29 merger or material change in business, corporate structure,
30 management or composition of the board of directors.
19850H1962B2642 - 285 -
1 (8) The number of shares of each class of insurance
2 stock or insurance holding company stock proposed to be
3 acquired which are beneficially owned by the person proposing
4 to acquire the insurance stock or insurance holding company
5 stock or which are subject to rights of acquisition by that
6 person, the dates of any sales and purchases of the stock by
7 the person and each associate of the person within the past
8 two years and the prices received or paid in connection with
9 such sales and purchases.
10 (9) Information as to any contracts or arrangements with
11 any person with respect to any securities of the insurance
12 company of insurance holding company whose capital stock is
13 to be acquired, including, but not limited to, those with
14 respect to:
15 (i) Transfer of such securities.
16 (ii) Joint ventures.
17 (iii) Loan or option arrangements.
18 (iv) Puts or calls.
19 (v) Guaranties of loans.
20 (vi) Guaranties against loss or guaranties of
21 profits.
22 (vii) Division of losses or profits.
23 (viii) The giving or withholding of proxies.
24 (ix) Names of the persons with whom these contracts
25 or arrangements have been entered into.
26 (10) Complete audited statements as to the earnings and
27 financial condition of the person for the preceding five
28 fiscal years of the person and similar unaudited information
29 as of a date not more than 90 days prior to the filing of the
30 statement with the commissioner.
19850H1962B2642 - 286 -
1 (c) Criteria for approval.--The commissioner shall approve
2 the acquisition if he determines that all of the following
3 requirements are met:
4 (1) The statement and other material filed under
5 subsection (b) comply with the requirements thereof.
6 (2) The commissioner has no reason to believe that after
7 the acquisition the insurance company whose capital stock is
8 to be acquired or the prospective subsidiary will not
9 continue to comply with the law of this Commonwealth.
10 (3) Upon completion of the acquisition, the insurance
11 company whose capital stock is to be acquired or the
12 prospective subsidiary would satisfy the requirements for the
13 issuance of a license to write any line of insurance which it
14 is presently licensed to write in this Commonwealth.
15 (4) The effect of the acquisition will not be
16 substantially to lessen competition in insurance in this
17 Commonwealth or to tend to create a monopoly.
18 (5) The financial condition of the person proposing to
19 make the acquisition is not such as might jeopardize the
20 financial stability of the insurance company whose capital
21 stock is to be acquired or the prospective subsidiary or
22 prejudice the interests of the policyholders of the insurance
23 company or, in the case of an acquisition of control other
24 than by merger or consolidation, prejudice the interests of
25 any remaining shareholders of the insurance company who are
26 unaffiliated with the person proposing to make the
27 acquisition.
28 (6) The plans or proposals which the person proposing to
29 make the acquisition has to liquidate the insurance company
30 whose capital stock is to be acquired or the prospective
19850H1962B2642 - 287 -
1 subsidiary, to sell the assets of the insurance company, to
2 merge or consolidate it with any person or to make any other
3 material change in its business or corporate structure or
4 management, are fair and reasonable to its policyholders and
5 shareholders.
6 (7) The competence, experience and integrity of those
7 persons who control or manage the person proposing to make
8 the acquisition and of those persons who would control or
9 manage the operation of the insurance company indicate that
10 it would be in the interest of the policyholders and
11 shareholders of the insurance company and of the general
12 public to permit such acquisition to be made.
13 (8) The interests of the policyholders, shareholders and
14 general public would not otherwise be prejudiced or impaired.
15 (d) Procedure.--The commissioner shall notify the person
16 filing the statement, the issuer whose stock is proposed to be
17 acquired and, if the issuer is an insurance holding company, the
18 prospective subsidiary of the commissioner's approval or
19 disapproval of the proposed acquisition. If the commissioner
20 gives notice of approval, the proposed offer and acquisition may
21 be made and consummated on the terms and conditions and in the
22 manner described in the statement, subject to any conditions
23 prescribed by the commissioner under this subsection. An
24 approval by the commissioner shall extend to offers or
25 acquisitions made pursuant to it within one year following the
26 date of determination. The commissioner may, as a condition of
27 approval, require the inclusion in any offer of provisions
28 requiring the offer to remain open a specified minimum length of
29 time, permitting withdrawal of shares deposited prior to the
30 time the offeror becomes bound to consummate the acquisition and
19850H1962B2642 - 288 -
1 requiring pro rata acceptance of any shares deposited pursuant
2 to the offer. The commissioner shall hold a hearing before
3 approving or disapproving the proposed acquisition if, within
4 ten days following the filing with the commissioner of the
5 statement called for by subsection (b), written request for a
6 hearing is made either by the person proposing to make the
7 acquisition, by the issuer whose stock is proposed to be
8 acquired or, if the issuer is an insurance holding company, by
9 the prospective subsidiary; otherwise, the commissioner may hold
10 such a hearing. Sixty days' notice of the hearing shall be given
11 to the person proposing to make the acquisition to the issuer
12 whose stock is proposed to be acquired and, if the issuer is an
13 insurance holding company, to the prospective subsidiary. The
14 commissioner may give notice of the hearing to other persons.
15 Any hearing held pursuant to this section shall be governed by 2
16 Pa.C.S. Ch. 5 Subch. A (relating to practice and procedure of
17 Commonwealth agencies).
18 (e) Regulations.--The commissioner may promulgate
19 regulations with respect to solicitations and recommendations
20 for the acceptance of offers made pursuant to this section.
21 (f) Prohibitions.--A person who acquires or offers to
22 acquire insurance stock or insurance holding company stock
23 pursuant to this section shall not make in connection therewith
24 any false, deceptive or misleading statement, or omit to state
25 any material fact necessary in order to make the statements made
26 not misleading, or engage in any act or practice which is
27 fraudulent, deceptive or manipulative or violate the regulations
28 made under subsection (e).
29 (g) Remedy for violations.--If any person acquires or offers
30 to acquire insurance stock or insurance holding company stock in
19850H1962B2642 - 289 -
1 violation of this section, the issuer of the stock so acquired
2 or proposed to be acquired, any stockholder of the issuer and,
3 if the issuer is an insurance holding company, the prospective
4 subsidiary or any of its stockholders or the commissioner may
5 petition the court for a decree enjoining the acquisition or
6 offer and for further relief.
7 (h) Criminal penalties.--Any person who knowingly makes or
8 causes to be made any false statement in any statement or other
9 document filed with the commissioner under this section or who
10 violates subsection (a), (b), (c) or (f) commits a misdemeanor
11 of the second degree. However, a broker or dealer whose
12 participation in an offer or acquisition is limited to the
13 performance of the customary broker's function in transactions
14 effected on a stock exchange or in the over-the-counter market,
15 who receives no more than the customary broker's commission, who
16 does not solicit or arrange for the solicitation of orders to
17 sell shares of capital stock of the corporation whose shares are
18 being purchased and who is without knowledge that his principal
19 has solicited or arranged to solicit any such orders shall not
20 be deemed guilty of any violation of this section. This
21 exemption of the broker or dealer does not exempt his principal.
22 (i) Exemptions.--This section does not apply to any of the
23 following acquisitions of or offers to acquire insurance stock
24 or insurance holding company stock:
25 (1) Any acquisition or offer by the issuer of such stock
26 or by a person who at the time owns beneficially at least
27 two-thirds of the shares of each class proposed to be
28 acquired.
29 (2) Any acquisition or offer to acquire insurance stock
30 pursuant to section 3566 (relating to merger by acquisition
19850H1962B2642 - 290 -
1 of stock).
2 (3) An offer or acquisition which the commissioner by
3 order exempts from this section as:
4 (i) not entered into for the purpose of, and not
5 having the effect of, changing or influencing the control
6 of an insurance company organized under the laws of this
7 Commonwealth or an insurance holding company; and
8 (ii) not requiring the procedures described in this
9 section for the protection of stockholders whose shares
10 are to be acquired.
11 However, prior to the issuance of such an order, notice that
12 he is considering the exemption shall be given by the
13 commissioner to the person proposing to make the offer or
14 acquisition, to the issuer whose stock is proposed to be
15 acquired and, if the issuer is an insurance holding company,
16 to the prospective subsidiary. The commissioner shall hold a
17 hearing for the purpose of determining whether an exemption
18 order should be granted if, within ten days of the mailing of
19 the notice that he is considering the exemption, written
20 request for a hearing is made to the commissioner by the
21 issuer whose stock is proposed to be acquired or, if the
22 issuer is an insurance holding company, by the prospective
23 subsidiary.
24 (j) Definitions.--As used in this section the following
25 words and phrases shall have the meanings given to them in this
26 subsection:
27 "Associate of a person."
28 (1) Any corporation or other organization of which the
29 person is an officer, director or partner, or of which the
30 person is, directly or indirectly, the beneficial owner of
19850H1962B2642 - 291 -
1 10% or more of any class of its capital stock.
2 (2) Any person who is, directly or indirectly, the
3 beneficial owner of 10% or more of any class of capital stock
4 of such person.
5 (3) Any trust or other estate in which the person serves
6 as trustee or in a similar fiduciary capacity.
7 (4) Any relative or spouse of the person or any relative
8 of the spouse who has the same home as the person.
9 "Beneficial ownership." Includes the beneficial ownership of
10 capital stock by a person and of each associate of that person
11 and shares of capital stock as to which that person or any
12 associate of that person has the right of acquisition. A person
13 who has beneficial ownership of convertible securities shall
14 also be deemed to be the beneficial owner of any shares of
15 capital stock into which the securities are convertible.
16 "Insurance holding company." Any corporation which owns
17 beneficially 66 2/3% or more of any class of the outstanding
18 capital stock of any insurance company organized under the law
19 of this Commonwealth.
20 "Insurance holding company stock." Any capital stock of an
21 insurance holding company.
22 "Insurance stock." Any capital stock of any insurance
23 company organized under the law of this Commonwealth.
24 "Prospective subsidiary." An insurance company 66 2/3% or
25 more of whose outstanding capital stock of any class is
26 beneficially owned by an insurance holding company whose capital
27 stock is to be acquired pursuant to an offer or acquisition
28 described in subsection (a).
29 § 3569. Holding company systems.
30 (a) Registration.--Every authorized insurer which is a
19850H1962B2642 - 292 -
1 member of an insurance holding company system shall register
2 with the commissioner, except a foreign insurer domiciled in a
3 jurisdiction which has in force by law disclosure requirements
4 and standards substantially similar to those contained in this
5 section or an alien insurer whose state or original entry has
6 such requirements and standards. Any insurer subject to
7 registration under this section shall register within 15 days
8 after it becomes subject to registration, unless the
9 commissioner extends the time for registration. The commissioner
10 may require any authorized insurer which is a member of an
11 insurance holding company system and is not subject to
12 registration under this section to submit to him a copy of the
13 registration statement or other information filed by the insurer
14 with the insurance regulatory authority of its state of
15 domicile.
16 (b) Information and form required.--Every insurer subject to
17 registration shall file a registration statement on a form
18 prescribed by the commissioner. The form shall contain current
19 information about:
20 (1) The capital structure, general financial condition,
21 ownership and management of the insurer and any person
22 controlling the insurer.
23 (2) The identity of every member of the insurance
24 holding company system.
25 (3) The following current agreements, relationships and
26 transactions between the insurer and its affiliates:
27 (i) Loans, other investments, or purchases, sales or
28 exchanges or securities of the affiliates by the insurer
29 of the insurer by its affiliates.
30 (ii) Purchases, sales or exchanges of assets.
19850H1962B2642 - 293 -
1 (iii) Transactions not in the ordinary course of
2 business.
3 (iv) Guarantees or undertakings for the benefit of
4 an affiliate which result in an actual contingent
5 exposure of the insurer's assets to liability, other than
6 insurance contracts entered into in the ordinary course
7 of the insurer's business.
8 (v) Management and service contracts and cost-
9 sharing arrangements, other than cost allocation
10 arrangements based upon generally accepted accounting
11 principles.
12 (vi) Reinsurance agreements covering all or
13 substantially all of one or more lines of insurance of
14 the ceding company.
15 (4) Other material matters concerning transactions
16 between registered insurers and any affiliates as required by
17 the commissioner.
18 Information need not be disclosed on the registration statement
19 filed pursuant to this subsection if the information is not
20 material for the purposes of this section. Unless the
21 commissioner by regulation provides otherwise, sales, purchases,
22 exchanges, loans or extensions of credit, or investments
23 involving 0.5% or less of an insurer's admitted assets as of the
24 preceding December 31 shall not be deemed material for purposes
25 of this section.
26 (c) Amendments to registration statement.--Each registered
27 insurer shall report all material changes in the information
28 required to be disclosed in its registration statement within 15
29 days after the end of the month in which it learns of the change
30 on amendment forms prescribed by the commissioner. However, each
19850H1962B2642 - 294 -
1 registered insurer shall report all extraordinary dividends and
2 other extraordinary distributions to shareholders promptly to
3 the commissioner upon the declaration thereof under subsection
4 (i).
5 (d) Termination of registration.--The commissioner shall
6 terminate the registration of any insurer which demonstrates
7 that it no longer is a member of an insurance holding company
8 system.
9 (e) Consolidated filing.--The commissioner may allow two or
10 more affiliated insurers to file a consolidated registration
11 statement or consolidated reports amending their consolidated
12 registration statement or their individual registration
13 statements.
14 (f) Alternative registration.--The commissioner may allow
15 any insurer which is part of an insurance holding company system
16 to register on behalf of any affiliated insurer which is
17 required to register under subsection (a) and to file all
18 information and material required to be filed under this
19 section.
20 (g) Transactions with affiliates.--Material transactions by
21 registered insurers with their affiliates are subject to the
22 following requirements:
23 (1) The terms shall be fair and reasonable.
24 (2) The books, accounts and records of each party shall
25 be so maintained as to disclose clearly and accurately the
26 precise nature and details of the transactions.
27 (3) The insurer's surplus as regards policyholders
28 following any such transaction, including the payment of
29 dividends or distributions to shareholder affiliates, shall
30 be reasonable in relation to the insurer's outstanding
19850H1962B2642 - 295 -
1 liabilities and adequate to its financial needs.
2 (h) Adequacy of surplus.--In determining whether subsection
3 (g)(3) is complied with, the commissioner shall consider all
4 relevant factors, including, but not limited, to the following:
5 (1) The size of the insurer as measured by its assets,
6 capital and surplus, reserves, premium writings, insurance in
7 force and other appropriate criteria.
8 (2) The extent to which the insurer's business is
9 diversified among the several lines of insurance.
10 (3) The number and size of risks insured in each line of
11 business.
12 (4) The extent of the geographical dispersion of the
13 insurer's risks.
14 (5) The nature and extent of the insurer's reinsurance
15 program.
16 (6) The quality, diversification and liquidity of the
17 insurer's investment portfolio.
18 (7) The recent past and projected future trend in the
19 size of the insurer's surplus as regards policyholders.
20 (8) The surplus as regards policyholders maintained by
21 other comparable insurers.
22 (9) The adequacy of the insurer's reserves.
23 (10) The quality and liquidity of investments in
24 affiliated persons. The commissioner may treat any such
25 investment as a disallowed asset for purposes of determining
26 the adequacy of surplus as regards policyholders whenever in
27 his judgment the investment so warrants.
28 (i) Dividends and other distributions.--An insurer required
29 to register under subsection (a) shall not pay any extraordinary
30 dividend to its stockholders until:
19850H1962B2642 - 296 -
1 (1) the commissioner has received 30 days' written
2 notice from the insurer of the declaration thereof and has
3 not within the period disapproved the payment; or
4 (2) the commissioner has approved the payment within the
5 30-day period.
6 (j) Examinations.--The commissioner may order any insurer
7 registered under subsection (a) to produce any records, books or
8 papers in the possession of the insurer or its affiliates
9 necessary to ascertain the financial condition or legality of
10 conduct of the insurer. These books, records, papers and
11 information shall be examined in the manner prescribed in
12 sections 511 (relating to examination of companies) and 512
13 (relating to powers with regard to examinations). The
14 commissioner may retain at the registered insurer's expense any
15 attorneys, actuaries, accountants and other experts not
16 otherwise a part of the commissioner's staff reasonably
17 necessary to assist in the conduct of this examination. Any
18 persons so retained shall be under the direction and control of
19 the commissioner and shall only act in an advisory capacity.
20 Each registered insurer producing for examination records, books
21 and papers shall be liable for and shall pay the expense of the
22 examination in accordance with section 512.
23 (k) Confidential treatment.--All information reported
24 pursuant to subsections (a) through (f) and all information and
25 documents obtained by or disclosed to the commissioner or any
26 other person in the course of an examination made pursuant to
27 subsection (j) shall be given confidential treatment. They shall
28 not be subject to subpoena or be made public by the commissioner
29 or any other person without the prior written consent of the
30 insurer. However, if the commissioner, after giving the insurer
19850H1962B2642 - 297 -
1 and its affiliates notice and an opportunity to be heard,
2 determines that the interests of policyholders, shareholders or
3 the public will be served by the publication thereof, he may
4 publish all or any part in any manner he deems appropriate.
5 (l) Injunctions.--Whenever it appears to the commissioner
6 that any person has committed or is about to commit a violation
7 of this section or any regulation or order issued by the
8 commissioner pursuant thereto, the commissioner may petition the
9 Commonwealth Court to enjoin the person from continuing the
10 violation and to obtain other equitable relief.
11 (m) Penalties.--Upon satisfactory evidence of a violation by
12 any person of this section or of any regulation or order of the
13 commissioner pursuant thereto, the commissioner may, following a
14 hearing in accordance with 2 Pa.C.S. Ch. 5 Subch. A (relating to
15 practice and procedure of Commonwealth agencies), impose a
16 penalty of not more than $25,000 for each violation. In
17 addition, if the offending person is an insurer, the
18 commissioner may, following the hearing, suspend or revoke its
19 license or refuse, for a period not to exceed one year, to issue
20 it a new license. In determining the nature and amount of any
21 penalty, consideration shall be given to whether or not the
22 violation was willful.
23 (n) Definitions.--As used in this section the following
24 words and phrases shall have the meanings given to them in this
25 subsection:
26 "Affiliate." A person who directly, or indirectly through
27 one or more intermediaries, controls, or is controlled by, or is
28 under common control with, a specified person.
29 "Control." The possession, direct or indirect, of the power
30 to direct the management and policies of a person, whether
19850H1962B2642 - 298 -
1 through the ownership of voting securities, by contract or
2 otherwise, unless the power is the result of an official
3 position with or corporate office held by the person. Control is
4 presumed to exist if any person, directly or indirectly, owns,
5 controls, holds with the power to vote or holds proxies
6 representing 10% or more of the voting securities of any other
7 person. This presumption may be rebutted by a showing that
8 control does not exist in fact. The commissioner may, after
9 furnishing all persons in interest notice and an opportunity to
10 be heard, determine that control exists in fact, notwithstanding
11 the absence of a presumption to that effect.
12 "Extraordinary dividend." Any dividend or other distribution
13 which, together with other dividends and distributions made
14 within the preceding 12 months, exceeds the greater of:
15 (i) ten percent of the insurer's surplus as regards
16 policyholders as shown on its last annual statement on file
17 with the commissioner; or
18 (ii) the net gain from operations of the insurer, if the
19 insurer is a life insurer, or the net investment income, if
20 the insurer is not a life insurer, for the period covered by
21 the statement, not including pro rata distributions of any
22 class of the insurer's own securities.
23 "Insurance company" or "insurer." Any entity authorized by
24 the commissioner to transact the business of insurance in this
25 Commonwealth, not including any instrumentality of the Federal
26 Government.
27 "Insurance holding company system." Two or more affiliated
28 persons, one or more of which is an insurance company.
29 "Subsidiary." An affiliate controlled by a specified person
30 directly, or indirectly through one or more intermediaries.
19850H1962B2642 - 299 -
1 § 3570. Voluntary dissolution.
2 A stock or mutual insurance company may file with the court
3 of common pleas in the county in which the principal business of
4 the company is conducted or of the county in which its principal
5 office of place of business is located a petition in equity
6 praying for the dissolution of the company. The petition may be
7 granted only if it is filed with the consent of a majority of
8 the members or stockholders obtained at a meeting duly convened.
9 A copy of the petition shall be filed with the commissioner. If
10 the court is satisfied that the petition may be granted without
11 prejudice to the public welfare or to the interests of the
12 members or stockholders, the court shall grant the petition,
13 whereupon the company shall be dissolved. The accounts of the
14 officers, directors or trustees of any dissolved company shall
15 be settled and approved by the court. Dividends of the assets
16 shall, in the case of stock insurance companies, be made among
17 the stockholders or, in the case of mutual life insurance
18 companies, among the members, as in the case of the accounts of
19 assignees and trustees; however, assets of mutual life insurance
20 companies derived from a health and accident business, other
21 than those properly credited to the members or policyholders on
22 policies covering the business, and the assets of other mutual
23 companies, not creditable to policyholders and members, shall be
24 escheated to the Commonwealth. The decree of the court shall not
25 go into effect until the Auditor General, State Treasurer and
26 Attorney General have filed in court their certificate showing
27 that all taxes due the Commonwealth have been paid and a
28 certified copy of the decree has been filed and recorded in the
29 office of the Secretary of the Commonwealth.
30 § 3571. Dissolution for failure to do business.
19850H1962B2642 - 300 -
1 If any stock or mutual insurance company does not commence to
2 issue policies within one year from the date of its letters
3 patent, or if any insurance company ceases for one year to write
4 new insurance policies, its corporate powers and existence shall
5 cease. The court, upon petition of the Attorney General, may fix
6 by decree the time within which it shall settle and close its
7 affairs.
8 SUBCHAPTER E
9 FOREIGN OR ALIEN COMPANIES
10 Sec.
11 3576. Government-owned companies.
12 3577. Conditions for authorization of foreign or alien
13 companies.
14 3578. Power of foreign or alien insurance companies as to
15 real property.
16 § 3576. Government-owned companies.
17 (a) Prohibition.--A domestic, foreign or alien insurance
18 entity, in which the major financial interest is held, directly
19 or indirectly, by another state or by a foreign government or by
20 any political subdivision, instrumentality or agency of either,
21 shall not be admitted and authorized to do business. A
22 certificate of authority to transact any kind of insurance
23 business in this Commonwealth shall not be issued, renewed or
24 continued in effect for any such insurance entity.
25 (b) Applicability.--This section does not apply to any
26 insurance entity which was so owned, controlled or constituted
27 prior to January 1, 1958, and was authorized to do business in
28 this Commonwealth and was issued a certificate of authority to
29 do so prior to January 1, 1958.
30 § 3577. Conditions for authorization of foreign or alien
19850H1962B2642 - 301 -
1 companies.
2 A foreign or alien stock or mutual insurance company or
3 association shall not be admitted and authorized to do business
4 until it has complied with the following requirements:
5 (1) It has filed with the commissioner:
6 (i) A certified copy of its charter or deed of
7 settlement.
8 (ii) A statement of its financial condition and
9 business, signed and sworn to by its proper officers.
10 (iii) Copies of forms of all policies it proposes to
11 issue in this Commonwealth.
12 (iv) Any other information the commissioner
13 requires.
14 (2) It has satisfied the commissioner that it is fully
15 and legally organized under the laws of its state or
16 government to do the business it proposes to transact and if
17 a stock company has the requisite amount of capital fully
18 paid up and unimpaired.
19 (3) By a duly executed instrument filed in his office,
20 it constitutes and appoints the commissioner its true and
21 lawful attorney, upon whom all lawful processes in any legal
22 proceeding against it may be served. Furthermore, it shall
23 agree that any lawful process against it which may be served
24 upon him as its attorney shall be of the same effect as if
25 served on the company, and that this authority shall continue
26 in force irrevocably as long as any liability of the company
27 remains outstanding in this Commonwealth.
28 (4) It has filed in the office of the Auditor General a
29 statement showing:
30 (i) The name of the company or association.
19850H1962B2642 - 302 -
1 (ii) The date of incorporation or organization.
2 (iii) The statute or authority under which
3 incorporated or organized.
4 (iv) The place of business.
5 (v) The post office address and names of the
6 president, secretary and treasurer.
7 (vi) The amount of capital authorized by its
8 charter.
9 (vii) The amount of capital paid into the treasury
10 of the company.
11 Any company or association which neglects or refuses to file
12 this statement shall be subject to a penalty of $500, which
13 shall be collected, on an account settled by the Auditor
14 General and State Treasurer, in the same manner as taxes on
15 stock are settled and collected.
16 (5) It has actually engaged in doing an insurance
17 business and has complied with applicable law in its state of
18 domicile for a period of at least one year immediately
19 preceding its seeking admission to this Commonwealth. The
20 requirements of this paragraph may be partly or entirely
21 waived by the commissioner with respect to any company or
22 association which is affiliated with one or more insurers
23 already authorized in this Commonwealth.
24 § 3578. Power of foreign or alien insurance companies as to
25 real property.
26 (a) General rule.--Any foreign or alien insurance
27 corporation or company, joint stock company or association
28 authorized to transact business within this Commonwealth may,
29 subject to the same limitations for domestic insurance
30 companies:
19850H1962B2642 - 303 -
1 (1) Acquire, hold, mortgage, lease and transfer real
2 property in this Commonwealth.
3 (2) Enter into agreements with one more other authorized
4 insurance companies, whereby the parties to the agreements
5 participate in ownership, management and control of real
6 estate held by the company, or by a corporation whose stock
7 is held by the company.
8 (3) Invest in the capital stock and obligations of
9 corporations organized for the purpose of acquiring real
10 estate in this Commonwealth.
11 (4) Exercise all rights, privileges and duties accorded
12 to and imposed upon lien creditors purchasing at judicial
13 sales.
14 (b) Taxation.--This title does not exempt real estate
15 acquired, held, mortgaged, leased or conveyed by any insurance
16 company under this section from being taxed in the same manner
17 as other real estate within this Commonwealth.
18 SUBCHAPTER F
19 VIOLATIONS AND PENALTIES
20 Sec.
21 3581. Embezzlement by officers or agents.
22 3582. Rebates and inducements.
23 3583. Misrepresentations.
24 3584. Penalties for deceptive practices.
25 3585. Unfair discrimination.
26 3586. Unauthorized business practices.
27 3587. Buying proxies.
28 3588. Unauthorized motor vehicle services.
29 3589. Fraud in obtaining licenses or certificates.
30 3590. Securities transactions.
19850H1962B2642 - 304 -
1 § 3581. Embezzlement by officers or agents.
2 Any director, officer, agent or other person connected with
3 or doing business for or with any foreign or domestic insurance
4 entity which has complied with this title, who fraudulently
5 embezzles or appropriates to his use or the use of any other
6 person any money or other property belonging to the entity or
7 left with or held by the entity in trust, commits a misdemeanor
8 of the first degree. It is not necessary, in order to establish
9 a prima facie case for the Commonwealth, to set forth or prove
10 the incorporation of the company, except by the verbal testimony
11 of any competent witness.
12 § 3582. Rebates and inducements.
13 An insurance entity shall not offer or pay, directly or
14 indirectly, any rebate of the premium payable on the policy or
15 any other valuable consideration as an inducement for insurance
16 on any risk in this Commonwealth which is not specified in the
17 insurance policy or contract. This section does not prohibit the
18 taking of a bona fide obligation, with legal interest, in
19 payment of any premium or prohibit a company transacting
20 industrial life insurance on a weekly payment plan from
21 returning to policyholders who have made a premium payment for a
22 period of at least one year the percentage of premium which the
23 company would otherwise have paid for the weekly collection of
24 the premium.
25 § 3583. Misrepresentations.
26 (a) Policy terms.--An insurance entity or individual in its
27 behalf shall not issue any written or oral statement or circular
28 misrepresenting the terms of any policy issued or to be issued
29 by the entity or make an estimate, with intent to deceive, of
30 the future dividends payable under any policy.
19850H1962B2642 - 305 -
1 (b) Inducing policyholders to change insurers.--An insurance
2 entity or individual in its behalf shall not make any
3 misrepresentation or incomplete comparison of policies to any
4 person insured by any other entity for the purpose of inducing
5 the person to terminate his present insurance and to take out a
6 policy of insurance in another entity insuring against similar
7 risks.
8 § 3584. Penalties for deceptive practices.
9 (a) General rule.--Upon satisfactory evidence of the
10 violation of section 3582 (relating to rebates and inducements)
11 or 3583 (relating to misrepresentations) or 18 Pa.C.S. § 3922
12 (relating to theft by deception) or 4114 (relating to securing
13 execution of documents by deception) by any insurance entity or
14 any officer, director or attorney-in-fact thereof, the
15 commissioner may take any one or more of the following actions
16 against an offending person:
17 (1) Revoke an entity's certificate of authority.
18 (2) Refuse, for a period of not to exceed one year, to
19 issue an entity a new license.
20 (3) Impose a penalty of not more than $1,000 for each
21 violation.
22 (b) Hearing.--The commissioner shall give written notice to
23 the person accused of the violation, stating specifically the
24 nature of the alleged violation and fixing a time and place, at
25 least ten days thereafter, when a hearing shall be held. After
26 the hearing or upon failure of the accused to appear at the
27 hearing, the commissioner may impose a penalty described in
28 subsection (a).
29 (c) Criminal penalties.--Any person who violates section
30 3582 or 3583 commits a misdemeanor of the third degree.
19850H1962B2642 - 306 -
1 (d) Testimony and production of documents.--A person shall
2 not be excused from testifying or from producing any books or
3 documents at any hearing held by the commissioner or at the
4 trial or hearing before any court or district justice or any
5 person or company charged with violating section 3582 or 3583 or
6 18 Pa.C.S. § 3922 or 4114 on the ground that the testimony or
7 evidence may tend to incriminate himself. However, no person
8 shall be prosecuted for any act concerning which he shall be
9 compelled so to testify or produce evidence, documentary or
10 otherwise, except for perjury committed in so testifying.
11 § 3585. Unfair discrimination.
12 (a) General rule.--Unfair discrimination between individuals
13 of the same class in the amount of premiums or rates charged for
14 any policy of life, health and accident insurance and any other
15 lines and kinds of insurance not within the scope of Chapter 19
16 (relating to insurance rates), or in the benefits payable
17 thereon, or in the terms or conditions of the policy or in any
18 other manner is prohibited.
19 (b) Criminal penalty.--Any person who issues or causes to be
20 issued, either as principal or agent, any policy or contract of
21 insurance in this Commonwealth in violation of this section
22 commits a misdemeanor of the third degree.
23 (c) Civil penalties.--Upon satisfactory evidence of the
24 violation of this section by any person, the commissioner may
25 take any one or more of the following actions:
26 (1) Suspend or revoke the license of the offending
27 person.
28 (2) Refuse, for a period of not to exceed one year, to
29 issue a new license to the person.
30 (3) Impose a penalty of not more than $500 for each
19850H1962B2642 - 307 -
1 violation.
2 § 3586. Unauthorized business practices.
3 (a) Criminal penalty.--Any person who issues or causes to be
4 issued, either as principal or agent, any policy or contract of
5 insurance in this Commonwealth in violation of section 3515
6 (relating to approval of contracts by commissioner) commits a
7 misdemeanor of the third degree.
8 (b) Civil penalties.--Upon satisfactory evidence of the
9 violation of section 3515 by any person, the commissioner may
10 take any one or more of the following actions:
11 (1) Suspend or revoke the license of the offending
12 person.
13 (2) Refuse, for a period of not to exceed one year, to
14 issue a new license to the person.
15 (3) Impose a fine of not more than $1,000 for each
16 violation.
17 § 3587. Buying proxies.
18 A person shall not give or promise money or anything of value
19 to the owners or holders of capital stock of any insurance
20 company, or to the members of any mutual insurance company,
21 incorporated under the law of this Commonwealth, with intent to
22 secure the voting proxy of any share of the capital stock or of
23 any member. A proxy so obtained shall not be voted at any
24 stockholders' or members' meeting of any domestic insurance
25 company. Any person violating this section commits a misdemeanor
26 of the third degree.
27 § 3588. Unauthorized motor vehicle services.
28 (a) General rule.--A person, other than an authorized
29 insurance entity or an automobile club organized as a
30 corporation not-for-profit, shall not:
19850H1962B2642 - 308 -
1 (1) guarantee to owners of motor vehicles the services
2 of an attorney in event of damage to persons or property
3 arising out of the operation of the motor vehicle; or
4 (2) provide for the towing of any damaged motor vehicle.
5 (b) Violations.--Any person who violates this section
6 commits a misdemeanor of the third degree.
7 § 3589. Fraud in obtaining licenses or certificates.
8 (a) Unlawful acts.--Any person commits a misdemeanor of the
9 third degree if he commits any of the following acts:
10 (1) Misrepresenting his, their or its qualifications to
11 the commissioner or making false statements in applications
12 for any license or certificate.
13 (2) Impersonating or attempting or offering to
14 impersonate another person in taking or attempting or
15 offering to take any examination held in accordance with the
16 regulations of the commissioner.
17 (3) Taking, attempting or offering or inducing another
18 person to take such an examination in the name of any other
19 person.
20 (4) Having in his possession examination papers to be
21 used in any such examination when not contained in their
22 sealed wrappers, or copies of these papers, prior to the
23 examination, unless duly authorized by the commissioner.
24 (5) Selling or offering to sell, prior to the
25 examination, examination papers or any question prepared for
26 use in any such examination.
27 (6) Using in any such examination any question papers or
28 questions or securing or preparing the answers to the
29 questions prior to the examination.
30 (7) Transmitting to the commissioner answers to
19850H1962B2642 - 309 -
1 questions used in any such examination which are prepared or
2 written outside of the period of examination or altering any
3 answer after the period is closed.
4 (8) Securing or attempting to secure fraudulently any
5 credential regularly issued by the commissioner which is
6 based upon such an examination.
7 (9) Altering licenses or certificates in a manner as to
8 misrepresent the authority granted under the license or
9 certificate.
10 (b) Civil penalties.--Upon satisfactory evidence of the
11 violation of this section by any person, the commissioner may
12 take any of the following actions:
13 (1) Suspend or revoke the license of the offending
14 person.
15 (2) Refuse, for a period not to exceed one year, to
16 issue a new license to the person.
17 (3) Impose a fine of not more than $1,000 for each
18 violation.
19 (c) Hearing.--Before the commissioner takes any action under
20 subsection (b), he shall give written notice to the person
21 accused of the violation, stating specifically the nature of the
22 alleged violation, and fixing a time and place, at least ten
23 days thereafter, when a hearing of the of the matter shall be
24 held. After the hearing or upon failure of the accused to appear
25 at the hearing, the commissioner shall impose the penalty listed
26 in subsection (b).
27 § 3590. Securities transactions.
28 (a) Fraudulent use of securities.--Any member, officer,
29 director or attorney-in-fact of any authorized entity who, on
30 behalf of the entity, borrows, rents, hires, leases or otherwise
19850H1962B2642 - 310 -
1 engages the use of securities, notes or other obligations or
2 evidences of indebtedness owned or issued by any other entity or
3 individual, or of the Federal Government, a government agency or
4 agency of any state with intent to injure or defraud any person
5 or to deceive the commissioner or other person legally
6 authorized to examine the affairs of the entity, commits a
7 felony of the third degree.
8 (b) Aiding and abetting.--Any domestic or foreign
9 corporation which engages in or purports to be engaged in
10 organizing or receiving subscriptions for or disposing of stocks
11 of, or in any manner aiding or taking part in the formation or
12 in the business of an insurance entity either as agent or
13 otherwise, or which holds capital stock of one or more insurance
14 companies for the purpose of controlling the management thereof
15 as voting trustees or otherwise, or any employee, agent or
16 attorney thereof, that aids and abets an insurance entity in
17 borrowing, renting, hiring, leasing or engaging the use of such
18 stocks, bonds, debentures, notes, investment certificates,
19 securities, notes or other obligations or evidence of
20 indebtedness, commits a felony of the third degree.
21 (c) Civil penalties.--If any insurance entity is found in
22 possession of securities, notes or other obligations or
23 evidences of indebtedness acquired in violation of subsection
24 (a) or if any of its officers, directors, members or attorneys-
25 in-fact have been convicted under subsection (a), the commission
26 may suspend its certificate of authority. This section does not
27 prohibit the commissioner from bringing an action to dissolve
28 the insurance entity under Chapter 39 (relating to suspension of
29 business and dissolution).
30 CHAPTER 37
19850H1962B2642 - 311 -
1 INTERNATIONAL OPERATIONS
2 Sec.
3 3701. Authority to transact business outside United States.
4 3702. Domestication of alien insurers.
5 § 3701. Authority to transact business outside United States.
6 (a) General rule.--Domestic stock and mutual insurance
7 companies, other than life insurance companies, may transact
8 outside of the United States any form of insurance or
9 reinsurance, other than life insurance or annuities, on risks
10 outside of the United States. However, the company shall
11 maintain a minimum policyholders' surplus of $2,000,000. Such
12 companies may accept any kind of reinsurance, other than life
13 insurance and annuities, if the company maintains a minimum
14 policyholders' surplus as required by law.
15 (b) Reserves.--All companies doing the business permitted by
16 this section shall maintain reserves as required under Chapter 7
17 (relating to reserve liability).
18 § 3702. Domestication of alien insurers.
19 (a) General rule.--Upon compliance with the provisions of
20 this section, an authorized alien insurer which owns
21 beneficially, directly or indirectly, all of the outstanding
22 capital stock, other than directors' qualifying shares, of any
23 domestic insurer incorporated for the purpose of transacting the
24 same or similar classes of insurance which the United States
25 branch of the alien insurer is qualified and licensed to
26 transact, may, with the prior written approval and subject to
27 the final approval of the commissioner and of the insurance
28 supervisory official of the regulatory state of the United
29 States branch of the alien insurer, domesticate its United
30 States branch. The alien insurer shall enter into an agreement
19850H1962B2642 - 312 -
1 in writing with the domestic insurer providing for the
2 acquisition by the domestic insurer of the business and assets
3 of the United States branch of the alien insurer and the
4 assumption by the domestic insurer of all of the liabilities of
5 the United States branch for no consideration other than the
6 assumption of the liabilities or for additional consideration
7 payable by the issuance by the domestic insurer of shares of its
8 capital stock. For the purposes of this section, those shares of
9 capital stock of the domestic insurer or voting trust
10 certificates representing the shares, which are held in trust by
11 the United States branch of the alien insurer or are held in a
12 trust created by the alien insurer and of which the alien
13 insurer is a beneficiary, shall be deemed to be shares held
14 beneficially, but indirectly, by an alien insurer. The
15 acquisition of assets and assumption of liabilities of the
16 United States branch by the domestic insurer shall be effected
17 by the filing of an instrument of transfer and assumption with
18 the insurance supervisory official of the regulatory state. The
19 instrument shall be in form satisfactory to the commissioner and
20 the supervisory official of the regulatory state and shall be
21 executed by the alien insurer and the domestic insurer.
22 (b) Authorization and execution of domestication
23 agreement.--The domestication agreement shall be authorized,
24 adopted, approved, signed and acknowledged by the alien insurer
25 in accordance with the law of the country under which it is
26 organized. In the case of the domestic insurer, the
27 domestication agreement shall be adopted by resolution of its
28 board of directors and executed by its president or any vice
29 president and attested by its secretary or assistant secretary
30 under its corporate seal.
19850H1962B2642 - 313 -
1 (c) Approval by commissioner.--An executed counterpart of
2 the domestication agreement, together with certified copies of
3 the corporate proceedings of the domestic insurer and the alien
4 insurer approving, adopting and authorizing the execution of the
5 domestication agreement shall be submitted to the commissioner
6 for his approval. If the commissioner finds that the agreement
7 is in accordance with the provisions of this section and that
8 the interest of policyholders and creditors in this
9 Commonwealth, of the United States branch of the alien insurer
10 and of the domestic insurer are not materially adversely
11 affected, he shall approve the domestication agreement and
12 certify the approval in writing to the insurance supervisory
13 official of the regulatory state.
14 (d) Consummation of domestication agreement and transfer of
15 deposits.--Upon the filing with the commissioner of a certified
16 copy of the instrument of transfer and assumption, pursuant to
17 which the domestic insurer succeeds to the business and assets
18 of the United States branch of an alien insurer and assumes all
19 its liabilities and upon compliance with all the requirements of
20 the laws and of the insurance supervisory official of the
21 regulatory state regulating the terms, conditions and procedure
22 of the domestication, the domestication of the United States
23 branch shall become effective. Thereupon all the rights,
24 franchises and interests and all property the United States
25 branch shall be deemed as transferred and vested in the domestic
26 insurer, without any other deed or transfer. Simultaneously
27 therewith the domestic insurer shall be deemed to have assumed
28 all of the obligations and liabilities of the United States
29 branch and shall be held liable to pay and discharge its debts
30 and liabilities in the same manner as if they had been incurred
19850H1962B2642 - 314 -
1 and contracted by the domestic insurer. An action or proceeding
2 pending at the time of domestication, in which either the United
3 States branch or the domestic insurer are a party, shall not
4 abate or discontinue by reason of the domestication, but may be
5 carried on as if the domestication had not taken place or the
6 domestic company may be substituted in place of the United
7 States branch by order of the court. All deposits of the United
8 States branch held by the commissioner or other regulatory
9 agency in this Commonwealth shall be deemed held as security
10 that the domestic insurer will fully perform its obligations to
11 all policyholders and creditors within the United States of the
12 United States branch and of the domestic insurer; such deposits,
13 including all deposits of the United States branch and its
14 assets held in trust pursuant to the law of any other state,
15 shall be deemed to be assets of the domestic insurer and shall
16 be reported as such in the annual statements and other reports
17 which the domestic insurer may be required to file in this
18 Commonwealth. Upon the release by the commissioner or other
19 governmental agency or any other state of the deposits, the
20 securities and cash constituting the released deposit shall be
21 paid over to the domestic insurer as the lawful successor in
22 interest to the United States branch.
23 (e) Definitions.--As used in this section the following
24 words and phrases shall have the meanings given to them in this
25 subsection:
26 "Domestication." The reorganization of the United States
27 branch of an alien insurer as the result of which a domestic
28 stock insurance company succeeds to all the business and assets
29 and assumes all the liabilities of the United States branch of
30 the alien insurer.
19850H1962B2642 - 315 -
1 "Regulatory state." The state pursuant to the law of which
2 the assets of the United States branch of the alien insurer are
3 held in trust.
4 "United States branch." The business unit through which
5 business is transacted within the United States by an alien
6 insurer and the assets and liabilities of the insurer within the
7 United States pertaining to the business.
8 CHAPTER 39
9 SUSPENSION OF BUSINESS AND DISSOLUTION
10 Subchapter
11 A. General Provisions
12 B. Judicial and Administrative Procedure
13 C. Summary Proceedings
14 D. Rehabilitation
15 E. Liquidation Proceedings
16 F. Estate of Liquidated Insurer
17 G. Distribution of Estate of Liquidated Insurer
18 H. Interstate Relations
19 SUBCHAPTER A
20 GENERAL PROVISIONS
21 Sec.
22 3901. Construction and purpose.
23 3902. Applicability of chapter.
24 3903. Definitions.
25 § 3901. Construction and purpose.
26 (a) Construction.--This chapter does not limit the power
27 granted the commissioner by other provisions of law and shall be
28 liberally construed to effect the purpose stated in subsection
29 (b).
30 (b) Purpose.--The purpose of this chapter is the protection
19850H1962B2642 - 316 -
1 of the interests of insureds, creditors and the public
2 generally, with minimum interference with the normal
3 prerogatives of the owners and managers of insurers, through the
4 following:
5 (1) Early detection of any potentially dangerous
6 condition in an insurer and prompt application of appropriate
7 corrective measures.
8 (2) Improved methods for rehabilitating insurers,
9 involving the cooperation and management expertise of the
10 insurance industry.
11 (3) Enhanced efficiency and economy of liquidation,
12 through clarification and specification of the law, to
13 minimize legal uncertainty and litigation.
14 (4) Equitable apportionment of any unavoidable loss.
15 (5) Lessening the problems of interstate rehabilitation
16 and liquidation by facilitating cooperation between states in
17 the liquidation process and by extending the scope of
18 personal jurisdiction over debtors of the insurer outside
19 this Commonwealth.
20 (6) Regulation of the insurance business by the impact
21 of the law relating to delinquency procedures and substantive
22 rules on the entire insurance business.
23 § 3902. Applicability of chapter.
24 The proceedings authorized by this chapter may be applied to
25 the following:
26 (1) All insurers who are doing, or have done, an
27 insurance business in this Commonwealth and against whom
28 claims arising from that business may exist.
29 (2) All insurers who purport to do an insurance business
30 in this Commonwealth.
19850H1962B2642 - 317 -
1 (3) All insurers who have insured resident in this
2 Commonwealth.
3 (4) All other persons organized or in the process of
4 organizing with the intent to do an insurance business in
5 this Commonwealth.
6 (5) All nonprofit service plans established under this
7 title and all fraternal benefit societies and beneficial
8 societies subject to Chapters 43 (relating to Fraternal
9 Benefit Society Code of 1972), 75 (relating to hospital plan
10 corporations) and 77 (relating to professional health
11 services plan corporations).
12 (6) All title insurance companies subject to Chapter 67
13 (relating to title insurance).
14 § 3903. Definitions.
15 The following words and phrases when used in this chapter
16 shall have the meanings given to them in this section unless the
17 context clearly indicates otherwise:
18 "Admitted assets."
19 (1) Includes all of the following assets of an insurer:
20 (i) Cash in the possession of the insurer, or in
21 transit under its control, including the balance of any
22 deposit in a solvent bank or trust company.
23 (ii) Investments, securities, properties and loans
24 acquired or held in accordance with this title including:
25 (A) Interest due or accrued on any bond or
26 evidence of indebtedness which is not in default and
27 which is not valued on a basis including accrued
28 interest.
29 (B) Declared and unpaid dividends on stocks and
30 shares, unless this amount has otherwise been allowed
19850H1962B2642 - 318 -
1 as an asset.
2 (C) Interest due or accrued upon a collateral
3 loan in an amount not to exceed one year's interest.
4 (D) Interest due or accrued on deposits in any
5 solvent financial institution and interest due or
6 accrued on other assets, if the interest is in the
7 judgment of the commissioner a collectible asset.
8 (E) Interest due or accrued on a mortgage loan,
9 in an amount not exceeding the amount of the excess
10 of the value of the property less delinquent taxes
11 thereon over the unpaid principal, not to exceed
12 interest accrued for a period of 12 months.
13 (F) Rent due or accrued on real property if the
14 rent is not in arrears for more than three months,
15 and rent more than three months in arrears if the
16 payment of the rent is adequately secured by property
17 held in the name of the tenant and conveyed to the
18 insurer as collateral.
19 (G) The unaccrued portion of taxes paid prior to
20 the due date on real property.
21 (iii) Premium notes, policy loans and other policy
22 assets and liens on policies and certificates of life
23 insurance and annuity contracts and accrued interest
24 thereon, in an amount not exceeding the legal reserve and
25 other policy liabilities carried on each individual
26 policy.
27 (iv) The net amount of uncollected and deferred
28 premiums and annuity consideration in the case of a life
29 insurer.
30 (v) Premiums in the course of collection, other than
19850H1962B2642 - 319 -
1 for life insurance, not more than three months past due,
2 less commissions payable thereon. This limitation does
3 not apply to premiums payable directly or indirectly by
4 the Federal Government.
5 (vi) Installment premiums other than life insurance
6 premiums to the extent of the unearned premium reserve
7 carried on the policy to which the premiums apply.
8 (vii) Notes and similar written obligations, not
9 past due, taken for premiums other than life insurance
10 premiums, on policies permitted to be issued on that
11 basis, to the extent of the unearned premium reserves
12 carried thereon.
13 (viii) The full amount of reinsurance recoverable by
14 a ceding insurer from a solvent reinsurer if the
15 reinsurance is authorized under section 3512 (relating to
16 reinsurance).
17 (ix) Amounts receivable by an assuming insurer
18 representing funds withheld by a solvent ceding insurer
19 under a reinsurance treaty.
20 (x) Deposits or equities recoverable from
21 underwriting associations, syndicates and reinsurance
22 funds, or from a suspended banking institution, to the
23 extent deemed by the commissioner available for the
24 payment of losses and claims and at values to be
25 determined by him.
26 (xi) Electronic and mechanical machines constituting
27 a data processing and accounting system if the cost of
28 the system is at least $100,000 which shall be amortized
29 in full over a period not to exceed ten years.
30 (xii) All assets allowed pursuant to the annual
19850H1962B2642 - 320 -
1 statement form approved by the commissioner for use in
2 this Commonwealth for the kinds of insurance to be
3 reported upon.
4 (xiii) Other assets, not inconsistent with this
5 definition, deemed by the commissioner to be available
6 for the payment of losses and claims, at values to be
7 determined by him.
8 (2) The term does not include:
9 (i) Good will, trade names and other similar
10 intangible assets.
11 (ii) Advances, other than policy loans, to officers,
12 directors and controlling stockholders, whether secured
13 or not, and advances to employees, agents and other
14 persons on personal security only.
15 (iii) Stock of the insurer, owned by it, or any
16 material equity in the stock or loans secured thereby, or
17 any material proportionate interest in such stock
18 acquired or held through the ownership by the insurer of
19 an interest in another firm, corporation or business
20 unit.
21 (iv) Furniture, fixtures, furnishings, safes,
22 vehicles, libraries, literature and supplies, other than
23 data processing and accounting systems authorized under
24 31 Pa. Code § 11.4, except in the case of title insurers
25 such materials and plants as the insurer is expressly
26 authorized to invest in section 6738(21) (relating to
27 investment of capital) and, except in the case of any
28 insurer, any property which is acquired through
29 foreclosure of chattel mortgage or security interest
30 acquired pursuant to sections 5305 (relating to
19850H1962B2642 - 321 -
1 authorized holdings of real estate), 5506 (relating to
2 authorized holdings of real estate), 5926 (relating to
3 authorized holdings of real estate) and 6738 or which is
4 reasonably necessary for the maintenance and operation of
5 real estate lawfully acquired and held by the insurer
6 other than real estate used by it for home office, branch
7 office or similar purposes.
8 (v) The amount, if any, by which the aggregate book
9 value of investments as carried in the ledger assets of
10 the insurer exceeds their aggregate value as determined
11 under this chapter.
12 "Ancillary state." Any state other than a domiciliary state.
13 "Delinquency proceeding." Any proceeding instituted against
14 an insurer for the purpose of liquidating, rehabilitating,
15 reorganizing or conserving such insurer and any summary
16 proceeding under Subchapter C (relating to summary proceedings).
17 "Doing business." Includes any of the following acts,
18 whether effected by mail or otherwise:
19 (1) The issuance or delivery of contracts or
20 certificates of insurance to persons resident in this
21 Commonwealth.
22 (2) The solicitation of applications for such contracts
23 or other negotiations preliminary to the execution thereof.
24 (3) The collection of premiums, membership fees,
25 assessments or other consideration for such contracts.
26 (4) The transaction of matters subsequent to execution
27 of such contracts and arising therefrom.
28 "Domiciliary state." The state in which an insurer is
29 incorporated or organized or, in the case of an alien insurer,
30 its state of entry.
19850H1962B2642 - 322 -
1 "Fair consideration." Consideration given for property of
2 obligation:
3 (1) when, in exchange for the property or obligation as
4 a fair equivalent therefor and in good faith, property is
5 conveyed or services are rendered or an obligation is
6 incurred or an antecedent debt is satisfied; or
7 (2) when the property or obligation is received in good
8 faith to secure a present advance or antecedent debt in
9 amount not disproportionately small as compared to the value
10 of the property or obligation obtained therefor.
11 "General assets." All property, real, personal or otherwise,
12 not specifically mortgaged, pledged, deposited or otherwise
13 encumbered for the security or benefit of specified persons or
14 classes of persons. As to specifically encumbered property, the
15 term includes all such property or its proceeds in excess of the
16 amount necessary to discharge the sum secured. Assets held in
17 trust and on deposit for the security or benefit of all
18 policyholders and creditors shall be treated as general assets.
19 "Guaranty association." The Property and Casualty Insurance
20 Guaranty Association provided for under Chapter 81 (relating to
21 Property and Casualty Insurance Guaranty Association), the Life
22 and Health Insurance Guaranty Association provided for under
23 Chapter 83 (relating to Life and Health Insurance Guaranty
24 Association) and the Workmen's Compensation Security Fund
25 provided for under the act of July 1, 1937 (P.L.2532, No.470),
26 known as the Workmen's Compensation Security Fund Act, and any
27 other similar entity created under the statutes of this
28 Commonwealth or any other state for the payment of claims of
29 insolvent insurers.
30 "Insolvency."
19850H1962B2642 - 323 -
1 (1) In the case of an insurer issuing only assessable
2 fire insurance policies:
3 (i) the inability to pay any obligation within 30
4 days after it becomes payable; or
5 (ii) if an assessment is made within 30 days after
6 such date, the inability to pay the obligation 30 days
7 following the date specified in the first assessment
8 notice issued after the date of loss pursuant to section
9 4709 (relating to assessments).
10 (2) In the case of any other insurer, the inability to
11 pay its obligations when they are due, or having admitted
12 assets which do not exceed its liabilities plus the greater
13 of any capital and surplus required by law for its
14 organization or its authorized and issued capital stock.
15 "Insurer." Any person who is doing, has done, purports to
16 do, or is licensed to do an insurance business, and is or has
17 been subject to the authority of, or to liquidation,
18 rehabilitation, reorganization or conservation by any insurance
19 commissioner and any person included under section 3902
20 (relating to applicability of chapter).
21 "Liabilities." Includes, but is not limited to, reserves
22 required by statute or by regulations or specific requirements
23 of the commissioner upon a subject company at the time of
24 admission or subsequent thereto, and any other capital and
25 surplus requirements.
26 "Preferred claim." Any claim with respect to which this
27 chapter accords priority of payment from the general assets of
28 the insurer.
29 "Receiver." Receiver, liquidator, rehabilitator or
30 conservator.
19850H1962B2642 - 324 -
1 "Reciprocal state." Any state other than this Commonwealth
2 in which in substance and effect sections 3942(a) (relating to
3 liquidation orders), 3984 (relating to ancillary formal
4 proceedings) and 3986 (relating to claims of nonresidents
5 against domiciliary insurers) through 3988 (relating to
6 execution proceedings) are in force, in which provisions are in
7 force requiring that the commissioner or equivalent official be
8 the receiver of a delinquent insurer and in which some provision
9 exists for the avoidance of fraudulent conveyances and
10 preferential transfers.
11 "Secured claim." Any claim secured by mortgage, trust deed,
12 pledge, deposit as security, escrow or otherwise, but not
13 including special deposit claims or claims against general
14 assets. The term also includes claims which have become liens
15 upon specific assets by reason of judicial process.
16 "Special deposit claim." Any claim secured by a deposit made
17 pursuant to statute for the security or benefit of a limited
18 class of persons, but not including any claim secured by general
19 assets.
20 "Transfer." Includes, but is not limited to, the creation of
21 any lien upon a property interest. The retention of a security
22 title to property delivered to a debtor shall be deemed a
23 transfer suffered by the debtor.
24 SUBCHAPTER B
25 JUDICIAL AND ADMINISTRATIVE PROCEDURE
26 Sec.
27 3911. Jurisdiction and venue.
28 3912. Injunctions and orders.
29 3913. Cooperation of officers and employees.
30 3914. Bonds.
19850H1962B2642 - 325 -
1 3915. Reports of commissioner.
2 § 3911. Jurisdiction and venue.
3 (a) General rule.--A court shall not have jurisdiction to
4 entertain, hear or determine any delinquency proceeding other
5 than as provided in this chapter.
6 (b) Jurisdiction.--In addition to other grounds for
7 jurisdiction provided by the law of this Commonwealth, a court
8 of this Commonwealth having jurisdiction of the subject matter
9 has jurisdiction over a person served pursuant to the
10 Pennsylvania Rules of Civil Procedure or other applicable
11 provisions of law in an action brought by the receiver of a
12 domestic insurer or an alien insurer domiciled in this
13 Commonwealth if:
14 (1) the person served is obligated to the insurer as an
15 incident to any agency or brokerage arrangement between the
16 insurer and the agent or broker, in any action on or incident
17 to the obligation;
18 (2) the person served is a reinsurer who has written a
19 policy of reinsurance for an insurer against which a
20 rehabilitation or liquidation order is in effect when the
21 action is commenced, or is an agent or broker for the
22 reinsurer, in any action on or incident to the reinsurance
23 contract; or
24 (3) the person served is or has been an officer,
25 manager, trustee, organizer or person in a position of
26 comparable authority or influence in an insurer against which
27 a rehabilitation or liquidation order is in effect when the
28 action is commenced, in any action resulting from the
29 relationship with the insurer.
30 (c) Change of venue.--If the court on motion of any party
19850H1962B2642 - 326 -
1 finds that any action should as a matter of substantial justice
2 be tried in a forum outside this Commonwealth, the court may
3 enter an appropriate order to stay further proceedings on the
4 action in this Commonwealth.
5 (d) Commonwealth Court.--Actions authorized in this section
6 shall be brought in the Commonwealth Court.
7 § 3912. Injunctions and orders.
8 (a) Applications to Commonwealth Court.--Any receiver
9 appointed in a proceeding under this chapter may at any time
10 apply for, and the Commonwealth Court may grant, such
11 restraining orders, preliminary and permanent injunctions, and
12 other orders as are necessary and proper to prevent any of the
13 following:
14 (1) The transaction of further business.
15 (2) The transfer of property.
16 (3) Interference with the receiver or with the
17 proceeding.
18 (4) Waste of the insurer's assets.
19 (5) Dissipation and transfer of bank accounts.
20 (6) The institution or further prosecution of any
21 actions or proceedings.
22 (7) The obtaining of preferences, judgments,
23 attachments, garnishments or liens against the insurer, its
24 assets or its policyholders.
25 (8) The levying of execution against the insurer, its
26 assets or its policyholders.
27 (9) The making of any sale or deed for nonpayment of
28 taxes or assessments that would lessen the value of the
29 assets of the insurer.
30 (10) The withholding from the receiver of books,
19850H1962B2642 - 327 -
1 accounts, documents or other records relating to the business
2 of the insurer.
3 (11) Any other threatened or contemplated action that
4 might lessen the value of the insurer's assets or prejudice
5 the rights of policyholders, creditors or shareholders or the
6 administration of the proceeding.
7 (b) Applications to foreign courts.--The receiver may apply
8 to any court outside this Commonwealth for the relief described
9 in subsection (a) or suspension of any insurance licenses issued
10 by the commissioner.
11 § 3913. Cooperation of officers and employees.
12 (a) General rule.--Any employee, officer, manager, trustee
13 or general agent of any insurer, and any other person with
14 executive authority over any segment of the insurer's affairs,
15 including any person exercising direct or indirect control over
16 activities of an insurer through any holding company or other
17 affiliate, shall cooperate with the commissioner in any
18 proceeding under this chapter or any investigation preliminary
19 or incidental to the proceeding. Any person described in this
20 subsection shall reply promptly in writing to any inquiry from
21 the commissioner requesting a reply and make available to the
22 commissioner any books, accounts, documents, records,
23 information or property of or pertaining to the insurer and in
24 his possession, custody or control.
25 (b) Obstruction of commissioner.--A person shall not
26 obstruct or interfere with the commissioner in the conduct of
27 any delinquency proceeding or any investigation preliminary or
28 incidental thereto.
29 (c) Attorney fees and incidental orders.--In any case where
30 an insurer engages counsel for defense of and appeal with
19850H1962B2642 - 328 -
1 respect to a delinquency proceeding, reasonable costs and fees
2 for such representation may be paid from the general assets of
3 the insurer, subject to the approval of the Commonwealth agency
4 or court to which the appeal was made. If proceedings result in
5 a declaration of insolvency or are subsequent thereto, the
6 approved costs thereof shall be treated as administrative costs
7 or expenses under section 3968(2) (relating to order of
8 distribution). The insurer may petition the court or
9 Commonwealth agency for a stay of proceedings or other order.
10 (d) Penalties.--Any person described in subsection (a) who
11 violates its provisions or any person who obstructs or
12 interferes with the commissioner in the conduct of any
13 delinquency proceeding or any investigation preliminary or
14 incidental thereto or who violates any valid order the
15 commissioner issued under this chapter commits a misdemeanor of
16 the third degree, or shall, after a hearing, be subject to the
17 imposition by the commissioner of a civil penalty not to exceed
18 $10,000 and shall be subject further to the revocation or
19 suspension of any insurance license issued by the commissioner.
20 § 3914. Bonds.
21 In any proceeding under this chapter, the commissioner shall
22 be responsible on his official bonds for the faithful
23 performance of his duties. If desirable for the protection of
24 the assets, the court may at any time require an additional bond
25 from the commissioner. The additional bond shall be paid for out
26 of the assets of the insurer as a cost of administration.
27 § 3915. Reports of commissioner.
28 The commissioner shall as receiver make reports to the court
29 at the times and in the manner the court requires.
30 SUBCHAPTER C
19850H1962B2642 - 329 -
1 SUMMARY PROCEEDINGS
2 Sec.
3 3921. Summary orders of commissioner.
4 3922. Supervision by commissioner.
5 3923. Seizure orders.
6 3924. Conduct of hearings.
7 § 3921. Summary orders of commissioner.
8 (a) Issuance of order.--Whenever the commissioner has
9 reasonable cause to believe, and determines after a hearing,
10 that any insurer has committed or engaged in any act or practice
11 that would subject it to formal delinquency proceedings under
12 this chapter, he may issue an order against the insurer and any
13 other persons involved, including an order suspending the
14 business of an insurer, if doing so is reasonably necessary to
15 correct, eliminate or remedy the conduct, condition or ground.
16 If the commissioner also has reasonable grounds to believe that
17 irreparable harm to the property or business of the insurer or
18 to the interests of its policy or certificate holders, creditors
19 or the public may occur unless he issues with immediate effect
20 such an order, he may issue and serve the order without notice
21 and before hearing, simultaneously serving upon the insurer
22 notice of hearing under subsection (b).
23 (b) Notice.--The notice of hearing and the summary order
24 issued shall be served under applicable law. The notice of
25 hearing shall state the time and place of hearing, and the
26 conduct, condition or ground upon which the commissioner would
27 base his order, except where irreparable harm is alleged, in
28 which case the notice shall state the time and place of hearing.
29 Unless otherwise agreed between the commissioner and the
30 insurer, the hearing shall occur not more than 15 days after
19850H1962B2642 - 330 -
1 notice is served. The commissioner shall not publicize these
2 hearings and shall hold all hearings in summary proceedings
3 privately unless the insurer requests a public hearing, in which
4 case the hearing shall be public.
5 (c) Notice of suspension order.--Any suspension order made
6 by the commissioner under subsection (a) shall prohibit issuance
7 of policies, transfers of property and payments of moneys
8 without prior written approval of the commissioner. Notice of
9 this suspension shall be given, by first class mail within 15
10 days thereof, by the suspended organization to those who were
11 creditors, policyholders, members and certificate holders at the
12 date of suspension. Notice of the suspension shall be given,
13 within 15 days thereof, by the commissioner to creditors,
14 policyholders, members and certificate holders by one
15 publication in a newspaper of general circulation in the county
16 where the suspended organization has its principal office.
17 (d) Insolvent insurers.--From the date of such suspension on
18 the ground that the insurer is insolvent or is in such a
19 condition that its further transaction of business will be
20 hazardous financially to its policyholders, creditors or the
21 public, an action at law or equity shall not be commenced or
22 prosecuted nor shall any judgment be entered against nor shall
23 any execution or attachment be issued or prosecuted against the
24 suspended insurer, or against its property, in any court.
25 However, if such a suspension order is vacated by the
26 Commonwealth Court for the reason that the suspended insurer is
27 no longer insolvent or in a hazardous condition, restraints upon
28 legal process provided in the order shall cease to be operative.
29 (e) Waiver of hearing.--If the commissioner issues a summary
30 order before hearing under this section, the insurer may waive
19850H1962B2642 - 331 -
1 the commissioner's hearing and apply for immediate judicial
2 relief by means of any remedy afforded by law without first
3 exhausting administrative remedies.
4 (f) Civil penalty.--Any person who has violated any order
5 issued under this section shall be liable to pay a civil penalty
6 imposed by the Commonwealth Court not to exceed $10,000.
7 (g) Enforcement of summary orders.--The commissioner may
8 apply for, and any court of general jurisdiction may grant, any
9 restraining orders, preliminary and permanent injunctions and
10 other orders necessary and proper to enforce a summary order.
11 § 3922. Supervision by commissioner.
12 (a) Examination by commissioner.--If upon examination or at
13 any other time the commissioner determines that an insurer has
14 committed, engaged or is about to engage in any act or practice
15 that would subject it to formal delinquency proceedings under
16 this chapter, the commissioner shall notify the insurer of his
17 determination and furnish to the insurer an order containing a
18 written list of the commissioner's requirements to abate his
19 determination. If the commissioner after a hearing under section
20 3921(b) (relating to summary orders of commissioner) makes a
21 further determination to supervise, he shall issue an order to
22 the insurer notifying it that it is under the supervision of the
23 commissioner and that the commissioner is acting under this
24 section. The commissioner may issue an order under this section
25 without a hearing under the conditions of irreparable harm as
26 described in section 3921(a), and shall simultaneously serve
27 upon the insurer notice of a hearing to be held in accordance
28 with the provisions of section 3921(b); in this event, the
29 insurer may file an appeal under section 3921(e). The insurer
30 shall comply with the lawful requirements of the commissioner
19850H1962B2642 - 332 -
1 and, if placed under an order of supervision, shall have 90 days
2 from the date of service of the order within which to comply
3 with the requirements of the commissioner. If the insurer fails
4 to comply within this time, the commissioner may institute
5 proceedings in the Commonwealth Court to have a rehabilitator or
6 liquidator appointed under the provisions of this chapter or
7 issue an order extending an existing order of supervision. The
8 order extending any existing order shall be issued prior to the
9 end of each 90-day period, unless otherwise agreed to by the
10 insurer.
11 (b) Supervisor.--The commissioner may appoint a supervisor
12 to supervise the insurer and may provide that the insurer may
13 not do any of the following acts, during the period of
14 supervision, without the prior written approval of the
15 commissioner or the supervisor:
16 (1) Dispose of, convey or encumber any of its assets or
17 its business in force.
18 (2) Withdraw any of its bank accounts.
19 (3) Lend any of its funds.
20 (4) Invest any of its funds.
21 (5) Transfer any of its property.
22 (6) Incur any debt, obligation or liability.
23 (7) Merge or consolidate with another company.
24 (8) Enter into any new reinsurance contract or treaty.
25 (c) Liability.--If any person, subject to the provisions of
26 this chapter, including any person described in section 3913(a)
27 (relating to cooperation of officers and employees), violates
28 any valid order of the commissioner issued under this section
29 and, as a result, the net worth of the insurer is reduced or the
30 insurer otherwise suffers a loss, the person shall become
19850H1962B2642 - 333 -
1 personally liable to the insurer for the amount of any such
2 reduction or loss. The commissioner or supervisor may bring an
3 action on behalf of the insurer in the Commonwealth Court to
4 recover the amount of the reduction or loss together with any
5 costs.
6 § 3923. Seizure orders.
7 (a) Issuance of orders.--If the commissioner files in the
8 Commonwealth Court a petition alleging any ground that would
9 justify a court order for a formal delinquency proceeding
10 against an insurer under this chapter, and that the interests of
11 policyholders, creditors or the public will be endangered by
12 delay, which petition shall include the order deemed necessary
13 by the commissioner, the court may immediately issue the order
14 without a hearing. The order shall direct the commissioner to
15 take possession and control of all or a part of the property,
16 books, accounts, documents, other records of an insurer and of
17 the premises occupied by it for the transaction of its business
18 and, until further order of the court, enjoin the insurer and
19 its officers, managers, agents and employees from disposition of
20 its property and from transaction of its business except with
21 the written consent of the commissioner.
22 (b) Duration of order.--The court shall specify in the order
23 what its duration shall be, which shall be such time as the
24 court believes necessary for the commissioner to ascertain the
25 condition of the insurer. The initial duration or any extension
26 shall not exceed 90 days. On motion of either party or on its
27 own motion, the court may hold such hearings as are desirable,
28 after appropriate notice, and may extend, shorten or modify the
29 terms of the seizure order. The court shall vacate the seizure
30 order if the commissioner fails to commence a formal proceeding
19850H1962B2642 - 334 -
1 under this chapter prior to the expiration of a seizure order or
2 any extension. An order of the court pursuant to a formal
3 proceeding under this chapter shall vacate the seizure order.
4 (c) Anticipatory breach.--Entry of a seizure order under
5 this section shall not constitute an anticipatory breach of any
6 contract of the insurer.
7 (d) Petition for review.--An insurer subject to an ex parte
8 order of the Commonwealth Court issued under this section may
9 petition the court at any time after the issuance of the order
10 for a hearing and review. The court shall grant the hearing and
11 review within ten days of the filing of the petition.
12 § 3924. Conduct of hearings.
13 (a) Private hearing.--The Commonwealth Court may hold all
14 hearings in summary proceedings and judicial review privately in
15 chambers, and shall do so on request of the insurer proceeded
16 against.
17 (b) Confidentiality of records.-In all summary proceedings
18 and judicial reviews, all records of the insurer, other
19 documents and department files and court records and papers, so
20 far as they pertain to or are a part of the record of the
21 summary proceedings, shall be confidential except as is
22 necessary to obtain compliance therewith, unless and until the
23 Commonwealth Court, after hearing arguments from the parties in
24 chambers, shall order otherwise or unless the insurer requests
25 that the matter be made public.
26 (c) Penalty.--Any person having possession or custody of and
27 refusing to deliver any of the property, books, accounts,
28 documents or other records of or relating to an insurer against
29 which a seizure order or a summary order has been issued by the
30 commissioner or by the Commonwealth Court commits a misdemeanor
19850H1962B2642 - 335 -
1 of the third degree.
2 SUBCHAPTER D
3 REHABILITATION
4 Sec.
5 3931. Grounds for rehabilitation.
6 3932. Rehabilitation orders.
7 3933. Powers and duties of the rehabilitator.
8 3934. Actions by and against rehabilitator.
9 3935. Termination of rehabilitation.
10 § 3931. Grounds for rehabilitation.
11 An order of rehabilitation may be based on any of the
12 following grounds:
13 (1) The insurer is insolvent or is in such a condition
14 that the further transaction of business would be financially
15 hazardous to its policyholders, its creditors or the public.
16 (2) There is reasonable cause to believe that there has
17 been embezzlement from the insurer, wrongful sequestration or
18 diversion of the insurer's assets, forgery or fraud affecting
19 the insurer or other illegal conduct by or with respect to
20 the insurer that would endanger assets in an amount
21 threatening the solvency of the insurer.
22 (3) The insurer fails to remove any person who has
23 executive authority in the insurer if the person has been
24 found after notice and hearing to be dishonest or
25 untrustworthy in a way affecting the business of the insurer.
26 (4) Control of the insurer, whether by stock ownership
27 or otherwise and whether direct or indirect, is in a person
28 found after notice and hearing to be dishonest or
29 untrustworthy.
30 (5) Any person who has executive authority in the
19850H1962B2642 - 336 -
1 insurer has refused to be examined under oath by the
2 commissioner concerning its affairs, whether in this
3 Commonwealth or elsewhere, and after reasonable notice of the
4 fact the insurer fails to promptly and effectively terminate
5 the employment and status of the person and his influence on
6 management.
7 (6) After demand, the insurer fails to submit promptly
8 for examination any of its own property, books, accounts,
9 documents or other records or those of any subsidiary or
10 related company within the control of the insurer or those of
11 any person having executive authority in the insurer so far
12 as they pertain to the insurer. If the insurer is unable to
13 submit the property, books, accounts, documents or other
14 records of a person having executive authority in the
15 insurer, it shall be excused from doing so if it promptly and
16 effectively terminates the relationship of the person to the
17 insurer.
18 (7) Without first obtaining the written consent of the
19 commissioner, the insurer transfers, or attempts to transfer,
20 substantially its entire property or business, or enters into
21 any transaction the effect of which is to merge, consolidate
22 or reinsure substantially its entire property or business in
23 or with the property or business of any other person.
24 (8) The insurer or its property is the subject of an
25 application for the appointment of a receiver, trustee,
26 custodian, conservator, sequestrator or similar fiduciary of
27 the insurer or its property otherwise than as authorized
28 under this title, and the appointment has been made or is
29 imminent, and the appointment might oust the court of
30 jurisdiction or prejudice orderly delinquency proceedings
19850H1962B2642 - 337 -
1 under this chapter.
2 (9) Within the previous four years the insurer has
3 willfully violated its charter, articles of incorporation,
4 bylaws or this title in a manner which may result or has
5 resulted in substantial harm to the property or business of
6 an insurer or to the interests of its policy or certificate
7 holders, creditors or the public, or any valid order of the
8 commissioner under sections 3921 (relating to summary orders
9 of commissioner) and 3922 (relating to supervision by
10 commissioner).
11 (10) The insurer fails to pay within 60 days after due
12 date any obligation to any government agency or any judgment
13 entered in this Commonwealth. However, the nonpayment shall
14 not be deemed a ground for rehabilitation until 60 days after
15 any good faith effort by the insurer to contest the
16 obligation has been terminated, whether it is before the
17 commissioner or in the courts.
18 (11) The insurer has systematically attempted to
19 compromise or renegotiate previously agreed settlements with
20 its creditors on the ground that it is financially unable to
21 pay its obligations in full.
22 (12) The insurer has failed to file its annual report or
23 other report within the time allowed by law and, after
24 written demand by the commissioner, fails to give a
25 satisfactory explanation immediately.
26 (13) The board of directors, the holders of a majority
27 of the shares entitled to vote or a majority of those
28 individuals entitled to the control of any entity subject to
29 this chapter request or consent to rehabilitation.
30 § 3932. Rehabilitation orders.
19850H1962B2642 - 338 -
1 (a) Petition.--The commissioner may petition the
2 Commonwealth Court for an order authorizing him to rehabilitate
3 a domestic insurer or an alien insurer domiciled in this
4 Commonwealth, alleging that the insurer has committed one or
5 more acts which may constitute grounds for rehabilitation.
6 (b) Hearing.--An order of the Commonwealth Court to
7 rehabilitate the business of an insurer shall be issued only
8 after a hearing before the court or pursuant to a written
9 consent of the insurer.
10 (c) Filing of order.--The order to rehabilitate the business
11 of such an insurer shall appoint the commissioner as the
12 rehabilitator. The order shall direct the rehabilitator to take
13 possession of the assets of the insurer immediately, including
14 any deposits held by the commissioner, and to administer them
15 under the orders of the court. The filing or recording of the
16 order with the clerk of the Commonwealth Court or recorder of
17 deeds of the county in which the principal business of the
18 company is conducted or the county in which its principal office
19 or place of business is located shall impart the same notice as
20 a deed, bill of sale or other evidence of title filed or
21 recorded with that recorder of deeds would have imparted. Entry
22 of an order of rehabilitation does not constitute an
23 anticipatory breach of any contracts of the insurer.
24 § 3933. Powers and duties of the rehabilitator.
25 (a) Special deputy.--The commissioner as rehabilitator may
26 appoint a special deputy who shall have all the powers of the
27 rehabilitator granted under this section. The commissioner shall
28 make such arrangements for compensation as are necessary to
29 obtain a special deputy of proven ability. The special deputy
30 shall serve at the pleasure of the commissioner.
19850H1962B2642 - 339 -
1 (b) General powers and duties.--The rehabilitator may take
2 any action he deems necessary to correct the conditions which
3 constituted the grounds for the order of the court to
4 rehabilitate the insurer. He shall have all the powers of the
5 directors, officers and managers, whose authority shall be
6 suspended, except as they are redelegated by the rehabilitator.
7 He shall have full power to direct and manage, to hire and
8 discharge employees subject to their contract rights and to deal
9 with the property and business of the insurer.
10 (c) Remedial powers.--If it appears to the rehabilitator
11 that there has been criminal or tortious conduct, or breach of
12 any contractual or fiduciary obligation detrimental to the
13 insurer by any officer, manager, agent, broker, employee or
14 other person, he may pursue all appropriate legal remedies on
15 behalf of the insurer.
16 (d) Plan of rehabilitator.--The rehabilitator may prepare a
17 plan for the reorganization, consolidation, conversion,
18 reinsurance, merger or other transformation of the insurer. Upon
19 application of the rehabilitator for approval of the plan, and
20 after such notice and hearing as the court may prescribe, the
21 court may either approve or disapprove the plan proposed, or may
22 modify it and approve it as modified. If it is approved, the
23 rehabilitator shall carry out the plan. In the case of a life
24 insurer, the plan proposed may include the imposition of liens
25 upon the equities of policyholders of the company, provided that
26 all rights of shareholders are first relinquished. A plan for a
27 life insurer may also propose imposition of a moratorium upon
28 loan and cash surrender rights under policies for any period and
29 to any extent necessary.
30 (e) Avoidance of fraudulent transfers.--The rehabilitator
19850H1962B2642 - 340 -
1 shall have the power to avoid fraudulent transfers under
2 sections 3952 (relating to fraudulent transfers prior to
3 petition) and 3953 (relating to fraudulent transfers after
4 petition).
5 § 3934. Actions by and against rehabilitator.
6 On request of the rehabilitator, any court before which any
7 action or proceeding by or against an insurer is pending when a
8 rehabilitation order against the insurer is entered shall stay
9 the action or proceeding for such time as necessary for the
10 rehabilitator to obtain proper representation and prepare for
11 further proceedings. The Commonwealth Court shall order the
12 rehabilitator to take such action respecting the pending
13 litigation as is necessary in the interests of justice and for
14 the protection of creditors, policyholders and the public. The
15 rehabilitator shall immediately consider all litigation pending
16 outside this Commonwealth and shall petition the courts having
17 jurisdiction over that litigation for stays whenever necessary
18 to protect the estate of the insurer. The time between the
19 filing of a petition for rehabilitation against an insurer and
20 denial of the petition or an order of rehabilitation shall not
21 be considered to be a part of the time within which any action
22 may be commenced by or against the insurer. Any action by or
23 against the insurer that might have been commenced when the
24 petition was filed may be commenced for at least 60 days after
25 the order of rehabilitation is entered.
26 § 3935. Termination of rehabilitation.
27 (a) Petition for order of liquidation.--Whenever he has
28 reasonable cause to believe that further attempts to
29 rehabilitate an insurer would substantially increase the risk of
30 loss to creditors, policy and certificate holders or the public,
19850H1962B2642 - 341 -
1 or would be futile, the rehabilitator may petition the
2 Commonwealth Court for an order of liquidation. A petition under
3 this subsection shall have the same effect as a petition under
4 section 3942 (relating to liquidation orders). The Commonwealth
5 Court shall permit the directors to take any action reasonably
6 necessary to defend against the petition and may order payment
7 from the estate of the insurer of costs and other expenses of
8 defense.
9 (b) Petition for order terminating rehabilitation.--The
10 rehabilitator may at any time petition the Commonwealth Court
11 for an order terminating rehabilitation of an insurer. If the
12 Commonwealth Court finds that rehabilitation has been
13 accomplished and that grounds for rehabilitation under section
14 3931 (relating to grounds for rehabilitation) no longer exist,
15 it shall order that the insurer be restored to possession of its
16 property and the control of its business. The Commonwealth Court
17 may also make that finding and issue that order at any time upon
18 its own motion.
19 SUBCHAPTER E
20 LIQUIDATION PROCEEDINGS
21 Sec.
22 3941. Grounds for liquidation.
23 3942. Liquidation orders.
24 3943. Continuation of coverage.
25 3944. Dissolution of insurer.
26 3945. Powers of liquidator.
27 3946. Notice to creditors and others.
28 3947. Duties of agents.
29 3948. Actions by and against liquidator.
30 § 3941. Grounds for liquidation.
19850H1962B2642 - 342 -
1 Any ground on which an order of rehabilitation may be based,
2 as specified in section 3931 (relating to grounds for
3 rehabilitation), whether or not there has been a prior order of
4 rehabilitation of the insurer, shall be grounds for liquidation.
5 § 3942. Liquidation orders.
6 (a) Petition.--The commissioner may petition the
7 Commonwealth Court for an order directing him to liquidate a
8 domestic insurer domiciled in this Commonwealth, alleging that
9 the insurer has committed any act which may constitute grounds
10 for liquidation under this chapter.
11 (b) Hearing.--An order of the Commonwealth Court to
12 liquidate the business of an insurer shall be issued only after
13 a hearing before the court or pursuant to a written consent of
14 the insurer.
15 (c) Nature of order.--An order to liquidate the business of
16 a domestic insurer shall appoint the commissioner as liquidator
17 and shall direct the liquidator to take possession of the assets
18 of the insurer immediately and to administer them under the
19 orders of the court. The liquidator is vested with the title to
20 all of the property, contracts and rights of action and all of
21 the books and records of the insurer ordered liquidated,
22 wherever located, as of the date of the filing of the petition
23 for liquidation. He may recover and reduce the same to
24 possession except that ancillary receivers in reciprocal states
25 shall have, as to assets located in their respective states, the
26 rights and powers which are prescribed in section 3984(c)
27 (relating to ancillary formal proceedings) for ancillary
28 receivers appointed in this Commonwealth as to assets located in
29 this Commonwealth. The filing or recording of the order with the
30 Clerk of the Commonwealth Court or with the recorder of deeds of
19850H1962B2642 - 343 -
1 the county in which the principal business of the company is
2 conducted or the county in which its principal office or place
3 of business is located shall impart the same notice as a deed,
4 bill of sale or other evidence of title filed or recorded that
5 the recorder of deeds would have imparted.
6 (d) Effect of order.--Upon issuance of the order, the rights
7 and liabilities of the insurer and of its creditors,
8 policyholders, shareholders, members and all other persons
9 interested in its estate shall become fixed as of the date of
10 filing of the petition for liquidation, except as provided in
11 sections 3943 (relating to continuation of coverage) and 3963
12 (relating to special claims).
13 (e) Alien insurer.--An order to liquidate the business of an
14 alien insurer domiciled in this Commonwealth shall be in the
15 same terms and have the same legal effect as an order to
16 liquidate a domestic insurer, except that the assets and the
17 business in the United States shall be the only assets and
18 business included.
19 (f) Petition for judicial declaration of insolvency.--At the
20 time of petitioning for an order of liquidation or at any time
21 thereafter, the commissioner, after making appropriate findings
22 of an insurer's insolvency, following an administrative hearing,
23 may petition the court for a judicial declaration of insolvency.
24 After providing such notice and hearing as are permitted for
25 appeals from Commonwealth agencies, the court may make the
26 declaration.
27 § 3943. Continuation of coverage.
28 All insurance in effect at the time of issuance of an order
29 of liquidation shall continue in force only with respect to the
30 risks in effect, at that time until any of the following occurs:
19850H1962B2642 - 344 -
1 (1) A period of 30 days expires from the date of entry
2 of the liquidation order.
3 (2) The normal expiration of the policy coverage.
4 (3) The insured replaces the insurance coverage with
5 equivalent insurance in another insurer or otherwise
6 terminates the policy.
7 (4) The liquidator effects a transfer of the policy
8 obligation under section 3945(8) (relating to powers of
9 liquidator).
10 § 3944. Dissolution of insurer.
11 The commissioner may petition for an order dissolving the
12 corporate existence of a domestic insurer or the United States
13 branch of an alien insurer domiciled in this Commonwealth at the
14 time he applies for a liquidation order. The court shall order
15 dissolution of the corporation upon petition by the commissioner
16 upon or after the granting of a liquidation order. If the
17 dissolution has not previously been ordered, it shall be
18 effected by operation of law upon the discharge of the
19 liquidator.
20 § 3945. Powers of liquidator.
21 The liquidator shall have, but is not limited to, the
22 following powers and duties:
23 (1) To appoint a special deputy to act for him under
24 this chapter, and to determine his compensation. The special
25 deputy shall have all powers of the liquidator granted by
26 this section. The special deputy shall serve at the pleasure
27 of the commissioner.
28 (2) To employ employees, agents, legal counsel,
29 actuaries, accountants, appraisers, consultants and any other
30 personnel necessary to assist in the liquidation.
19850H1962B2642 - 345 -
1 (3) To fix the compensation of employees, agents, legal
2 counsel, actuaries, accountants, appraisers and consultants
3 without complying with civil service regulations.
4 (4) To pay compensation to persons appointed and to
5 defray all expenses of taking possession of, conserving,
6 conducting, liquidating, disposing of or otherwise dealing
7 with the business and property of the insurer. If the
8 property of the insurer does not contain sufficient cash or
9 liquid assets to defray the costs incurred, the commissioner
10 shall advance the costs so incurred out of the appropriation
11 for the maintenance of the department. Any amounts so paid
12 shall be deemed expenses of administration and shall be
13 repaid to the commissioner for the use of the department out
14 of the first available moneys of the insurer.
15 (5) To hold hearings, subpoena witnesses, compel their
16 attendance, administer oaths, examine any person under oath
17 and compel any person to subscribe to his testimony after it
18 has been correctly reduced to writing and, in connection
19 therewith, to require the production of any books, papers,
20 records or other documents which he deems relevant to the
21 inquiry.
22 (6) To collect all debts and moneys due and claims
23 belonging to the insurer which it is economical to collect,
24 wherever located, and for this purpose to institute timely
25 action in other jurisdictions, in order to forestall
26 garnishment and attachment proceedings against these debts;
27 to do any other acts necessary to collect, conserve or
28 protect its assets or property; to sell, compound, compromise
29 or assign for purposes of collection, upon those terms and
30 conditions which he deems best, any bad or doubtful debts;
19850H1962B2642 - 346 -
1 and to pursue any creditor's remedies available to enforce
2 his claims.
3 (7) To conduct public and private sales of the property
4 of the insurer.
5 (8) To use assets of the estate to transfer policy
6 obligations to a solvent assuming insurer, if the transfer
7 can be arranged without prejudice to applicable priorities
8 under section 3968 (relating to order of distribution).
9 (9) To acquire, hypothecate, encumber, lease, improve,
10 sell, transfer, abandon or otherwise dispose of or deal with
11 any property of the insurer at its market value or upon fair
12 and reasonable terms and conditions and to execute,
13 acknowledge and deliver deeds, assignments, releases and
14 other instruments necessary or proper to effectuate any sale
15 of property or other transaction in connection with the
16 liquidation. The liquidator shall file with the recorder of
17 deeds for the county in which the property is located a
18 certified copy of the order appointing him liquidator.
19 (10) To borrow money on the security of the insurer's
20 assets or without security and to execute and deliver all
21 documents necessary to that transaction for the purpose of
22 facilitating the liquidation.
23 (11) To enter into any contracts necessary to carry out
24 the order to liquidate, and to affirm or disavow any
25 contracts to which the insurer is a party.
26 (12) To institute or continue to prosecute in the name
27 of the insurer or in his own name any suits and other legal
28 proceedings, in this Commonwealth or elsewhere, and to
29 abandon the prosecution of claims if unprofitable to pursue
30 further. If the insurer is dissolved under section 3944
19850H1962B2642 - 347 -
1 (relating to dissolution of insurer), he shall have the power
2 to apply to any court in this Commonwealth or elsewhere for
3 leave to substitute himself for the insurer as plaintiff.
4 (13) To prosecute any action on behalf of the creditors,
5 members, policyholders or shareholders of the insurer against
6 any officer of the insurer or any other person.
7 (14) To remove any or all records and property of the
8 insurer to the offices of the commissioner or to any other
9 convenient place for the purposes of efficient and orderly
10 execution of the liquidation.
11 (15) To deposit in one or more banks in this
12 Commonwealth the sums required for meeting current
13 administration and operating costs.
14 (16) To invest all sums not currently needed unless the
15 court orders otherwise.
16 (17) To file any necessary documents for record in the
17 office of any recorder of deeds or record office in this
18 Commonwealth or elsewhere where property of the insurer is
19 located.
20 (18) To assert all defenses available to the insurer as
21 against third persons, including statutes of limitation,
22 statutes of frauds and usury. A waiver of any defense by the
23 insurer after a petition in liquidation has been filed shall
24 not bind the commissioner. When a guaranty association has an
25 obligation to defend a suit, the liquidator shall give
26 precedence to the obligations and shall defend only in the
27 absence of a defense by the guaranty association.
28 (19) To exercise and enforce all the rights, remedies,
29 and powers of any creditor, shareholder, policyholder or
30 member, including any power to avoid any transfer or lien
19850H1962B2642 - 348 -
1 that may be given by law and that is not included with
2 sections 3952 (relating to fraudulent transfers prior to
3 petition) through 3954 (relating to voidable preferences and
4 liens).
5 (20) To intervene in any proceeding wherever instituted
6 that might lead to the appointment of a receiver or trustee,
7 and to act as the receiver or trustee whenever the
8 appointment is offered.
9 (21) To enter into agreements with any receiver or
10 commissioner of any other state relating to the
11 rehabilitation, liquidation, conservation or dissolution of
12 an insurer doing business in both states.
13 (22) To exercise all powers conferred upon receivers by
14 the laws of this Commonwealth not inconsistent with the
15 provisions of this chapter.
16 § 3946. Notice to creditors and others.
17 (a) General rule.--The liquidator shall give notice of the
18 liquidation order as soon as possible by first class mail and
19 either by telegram or telephone to the insurance commissioner of
20 each jurisdiction in which the insurer is licensed to do
21 business, by first class mail and by telephone to any
22 responsible guaranty association of this Commonwealth, by first
23 class mail to all insurance agents having a duty under section
24 3947 (relating to duties of agents) and to all known
25 policyholders, creditors and claimants.
26 (b) Duty of claimants.--Notice to potential claimants under
27 subsection (a) shall require claimants to file with the
28 liquidator their claims together with proper proofs of claims by
29 the date the liquidator specifies in the notice. All claimants
30 shall keep the liquidator informed of any change of address.
19850H1962B2642 - 349 -
1 § 3947. Duties of agents.
2 (a) Notice to policyholders.--Every person who receives
3 notice in the form prescribed in section 3946 (relating to
4 notice to creditors and others), that an insurer which he
5 represents as an independent agent is the subject of a
6 liquidation order, shall, within 15 days of the notice, give
7 notice of the liquidation order to each policyholder or other
8 person named in any policy issued through the agent by the
9 insurer. The notice shall be sent by first class mail to the
10 last address contained in the agent's records. A policy shall be
11 deemed issued through an agent if the agent has a property
12 interest in the expiration of the policy, or if the agent has
13 had in his possession a copy of the declarations of the policy
14 at any time during the life of the policy, except where the
15 ownership of the expiration of the policy has been transferred
16 to another. The notice shall include the name and address of the
17 insurer, the name and address of the agent, identification of
18 the policy impaired and the nature of the impairment including
19 termination of coverage, as described in section 3943 (relating
20 to continuation of coverage). Notice by a general agent
21 satisfies the notice requirement for any agents under contract
22 to him.
23 (b) Penalty.--Any agent who fails to give notice as required
24 in subsection (a) shall be subject to payment of a penalty of
25 not more than $1,000 and may have his license suspended. The
26 penalty shall be imposed only after a hearing held by the
27 commissioner.
28 § 3948. Actions by and against liquidator.
29 (a) Stay.--Upon issuance of an order appointing the
30 commissioner liquidator of a domestic insurer or of an alien
19850H1962B2642 - 350 -
1 insurer domiciled in this Commonwealth, no action shall be
2 brought by or against the insurer, whether in this Commonwealth
3 or elsewhere, nor shall any such existing actions be continued
4 after issuance of the order.
5 (b) Intervention.--Whenever, in the liquidator's judgment,
6 protection of the estate of the insurer necessitates
7 intervention in an action against the insurer that is pending
8 outside this Commonwealth, he may intervene in the action with
9 approval of the court. The liquidator may defend any action in
10 which he intervenes under this section at the expense of the
11 estate of the insurer.
12 (c) Limitation of actions by liquidator.--The liquidator
13 may, upon or after an order for liquidation, within two years or
14 such additional time as the law permits, institute an action on
15 behalf of the estate of the insurer upon any cause of action if
16 the period of limitation has not expired at the time of the
17 filing of the petition upon which the order is entered. If a
18 period of limitation is fixed by agreement for instituting an
19 action or for filing any claim, proof of claim, proof of loss,
20 demand, notice or the like, or if in any proceeding, a period of
21 limitation is fixed for or doing any act, and if the period had
22 not expired at the date of the filing of the petition, the
23 liquidator may, for the benefit of the estate, take any action
24 required of or permitted to the insurer, within a period of 180
25 days subsequent to the entry of an order for liquidation, or
26 within such further period as is shown to the satisfaction of
27 the court not to be unfairly prejudicial to the other party.
28 (d) Limitation of actions against insurer.--The time between
29 the filing of a petition for liquidation against an insurer and
30 the denial of the petition shall not be considered to be a part
19850H1962B2642 - 351 -
1 of the time within which any action may be commenced against the
2 insurer. Any action against the insurer that might have been
3 commenced when the petition was filed may be commenced for at
4 least 60 days after the petition is denied.
5 SUBCHAPTER F
6 ESTATE OF LIQUIDATED INSURER
7 Sec.
8 3951. Collection and list of assets.
9 3952. Fraudulent transfers prior to petition.
10 3953. Fraudulent transfers after petition.
11 3954. Voidable preferences and liens.
12 3955. Claims of holders of void or voidable rights.
13 3956. Setoffs and counterclaims.
14 3957. Assessments.
15 3958. Liability of reinsurer.
16 3959. Recovery of premiums.
17 3960. Proposal for distribution.
18 § 3951. Collection and list of assets.
19 (a) Filing of list.--As soon as practicable after the
20 liquidation order, the liquidator shall prepare in duplicate a
21 list of the insurer's assets. The list shall be amended or
22 supplemented from time to time as the court requires. One copy
23 shall be filed in the office of the clerk of the Commonwealth
24 Court and one copy shall be retained for the liquidator's files.
25 All amendments and supplements shall be similarly filed.
26 (b) Liquidation of assets.--The liquidator shall reduce the
27 assets to a degree of liquidity that is consistent with the
28 prompt, effective and economical execution of the liquidation.
29 § 3952. Fraudulent transfers prior to petition.
30 (a) Avoidance.--Every transfer made or suffered and every
19850H1962B2642 - 352 -
1 obligation incurred by an insurer within one year prior to the
2 filing of a successful petition for rehabilitation or
3 liquidation under this chapter is fraudulent as to then existing
4 and future creditors if made or incurred without fair
5 consideration or with actual intent to hinder, delay or defraud
6 either existing or future creditors. A transfer made or an
7 obligation incurred by an insurer ordered to be rehabilitated or
8 liquidated under this chapter, which is fraudulent under this
9 section, may be avoided by the receiver, except as to a person
10 who in good faith is a purchaser, lienor or obligee for a
11 present fair equivalent value, and except that any purchaser,
12 lienor or obligee, who in good faith has given less than fair
13 consideration for the transfer, lien or obligation, may retain
14 it as security for repayment. The court may, on due notice,
15 order any such transfer or obligation to be preserved for the
16 benefit of the estate and, in that event, the receiver shall
17 succeed to and may enforce the rights of the purchaser, lienor
18 or obligee. Section 3954(d) (relating to voidable preferences
19 and liens) applies to determine the time when transfers are
20 deemed to be made or suffered under this section.
21 (b) Transaction with reinsurer.--Any transaction of the
22 insurer with a reinsurer shall be deemed fraudulent and may be
23 avoided by the receiver under subsection (a) if:
24 (1) the transaction consists of the termination,
25 adjustment or settlement of a reinsurance contract in which
26 the reinsurer is released from any part of its duty to pay
27 the originally specified share of losses that had occurred
28 prior to the time of the transaction, unless the reinsurer
29 gives a present fair equivalent value for the release; and
30 (2) any part of the transaction took place within one
19850H1962B2642 - 353 -
1 year prior to the date of filing of the petition through
2 which the receivership was commenced.
3 § 3953. Fraudulent transfers after petition.
4 (a) General rule.--Except as otherwise provided in this
5 section, a transfer by or in behalf of the insurer after the
6 date of the petition for liquidation by any person other than
7 the liquidator shall not be valid against the liquidator.
8 (b) Transfer of real property.--After a petition for
9 rehabilitation or liquidation, a transfer of any of the real
10 property of the insurer made to a person acting in good faith
11 shall be valid against the receiver if made for a present fair
12 equivalent value, or, if not made for a present fair equivalent
13 value, then to the extent of the present consideration actually
14 paid, for which amount the transferee shall have a lien on the
15 property. The commencement of a proceeding for rehabilitation or
16 liquidation shall be constructive notice upon the recording of a
17 copy of the petition for or order of rehabilitation or
18 liquidation with the recorder of deeds in the county where any
19 real property in question is located. The exercise by any
20 Federal or state court of the power to authorize or effect a
21 judicial sale of real property of the insurer within any county
22 in any state shall not be impaired by the pendency of such a
23 proceeding unless the copy is recorded in the county prior to
24 the consummation of the judicial sale.
25 (c) Pending rehabilitation.--After a petition for
26 rehabilitation or liquidation and before either the receiver
27 takes possession of the property of the insurer or an order of
28 rehabilitation or liquidation is granted:
29 (1) A transfer of any of the property of the insurer,
30 other than real property, made to a person acting in good
19850H1962B2642 - 354 -
1 faith shall be valid against the receiver if made for a
2 present fair equivalent value or, if not made for a present
3 fair equivalent value, then to the extent of the present
4 consideration actually paid, for which amount the transferee
5 shall have a lien on the property so transferred.
6 (2) A person indebted to the insurer or holding property
7 of the insurer may, if acting in good faith, pay the
8 indebtedness or deliver the property, or any part thereof, to
9 the insurer or upon his order, with the same effect as if the
10 petition were not pending.
11 (3) A person having actual knowledge of the pending
12 rehabilitation or liquidation shall be deemed not to act in
13 good faith.
14 (4) A person asserting the validity of a transfer under
15 this section shall have the burden of proof.
16 (d) Applicability.--This section does not impair the
17 negotiability of currency or negotiable instruments.
18 § 3954. Voidable preferences and liens.
19 (a) Preferences.--A preference is a transfer of any of the
20 property of an insurer to or for the benefit of a creditor, for
21 or on account of an antecedent debt, made or suffered by the
22 insurer within one year before the filing of a successful
23 petition for liquidation under this chapter, the effect of which
24 may be to enable the creditor to obtain a greater percentage of
25 this debt than another creditor of the same class would receive.
26 If a liquidation order is entered while the insurer is already
27 subject to a rehabilitation order, then transfers otherwise
28 qualifying shall be deemed preferences if made or suffered
29 within one year before the filing of the successful petition for
30 rehabilitation or within two years before the filing of the
19850H1962B2642 - 355 -
1 successful petition for liquidation, whichever time is shorter.
2 (b) Voidable preferences.--Any preference may be avoided by
3 the liquidator if:
4 (1) the insurer was insolvent at the time of the
5 transfer;
6 (2) the transfer was made within four months before the
7 filing of the petition;
8 (3) the creditor receiving it or to be benefited thereby
9 or his agent acting with reference thereto had, at the time
10 when the transfer was made, reasonable cause to believe that
11 the insurer was insolvent or was about to become insolvent;
12 or
13 (4) the creditor receiving it was an officer, an
14 employee, attorney or other person who was in a position of
15 comparable influence to an officer whether or not he held
16 such position, or any shareholder holding directly or
17 indirectly more than 5% of any class of any equity security
18 issued by the insurer, or any other person with whom the
19 insurer did not deal at arm's length.
20 (c) Effect of voidable preferences.--If the preference is
21 voidable, the liquidator may recover the property or, if it has
22 been converted, its value from any person who has received or
23 converted the property. However, if a bona fide purchaser or
24 lienor has given less than fair equivalent value, he shall have
25 a lien upon the property to the extent of the consideration
26 actually given by him. Where a preference by way of lien or
27 security title is voidable, the court may on due notice order
28 the lien or title to be preserved for the benefit of the estate,
29 in which event the lien or title shall pass to the liquidator.
30 (d) Time transfer completed.--A transfer of property other
19850H1962B2642 - 356 -
1 than real property shall be deemed to be made or suffered when
2 it becomes so far perfected that no subsequent lien obtainable
3 by legal or equitable proceedings on a simple contract could
4 become superior to the rights of the transferee. A transfer of
5 real property shall be deemed to be made or suffered when it
6 becomes so far perfected that no subsequent bona fide purchaser
7 from the insurer could obtain rights superior to the rights of
8 the transferee. A transfer which creates an equitable lien shall
9 not be deemed to be perfected if there are available means by
10 which a legal lien could be created. A transfer not perfected
11 prior to the filing of a petition for liquidation shall be
12 deemed to be made immediately before the filing of the
13 successful petition. The provisions of this subsection apply
14 whether or not there are or were creditors who might have
15 obtained liens or persons who might have become bona fide
16 purchasers.
17 (e) Liens.--A lien obtainable by legal or equitable
18 proceedings upon a simple contract is one arising in the
19 ordinary course of those proceedings upon the entry or docketing
20 of a judgment or decree, or upon attachment, garnishment,
21 execution or similar process, whether before, upon or after
22 judgment or decree and whether before or upon levy. It does not
23 include liens which under applicable law are given a special
24 priority over other liens which are prior in time.
25 (f) Priorities.--A lien obtainable by legal or equitable
26 proceedings could become superior to the rights of a transferee,
27 or a purchaser could obtain rights superior to the rights of a
28 transferee within the meaning of subsection (d), if these
29 consequences would follow only from the lien or purchase itself,
30 or from the lien or purchase followed by any step wholly within
19850H1962B2642 - 357 -
1 the control of the respective lienholder or purchaser, with or
2 without the aid of ministerial action by public officials. The
3 lien could not, however, become superior and the purchaser could
4 not create superior rights for the purpose of subsection (d)
5 through any acts subsequent to the obtaining of the lien or
6 subsequent to the purchase which require the agreement or
7 concurrence of any third party or which require any further
8 judicial action or ruling.
9 (g) Transfers for new consideration.--A transfer of property
10 for or on account of a new and contemporaneous consideration
11 which is deemed under subsection (d) to be made or suffered
12 after the transfer because of delay in perfecting it does not
13 become a transfer for or on account of an antecedent debt if any
14 acts required by the law to be performed in order to perfect the
15 transfer as against liens or bona fide purchasers' rights are
16 performed within 21 days or any period expressly allowed by the
17 law, whichever is less. A transfer to secure a future loan, if
18 the loan is actually made, or a transfer which becomes security
19 for a future loan shall have the same effect as a transfer for
20 or on account of a new and contemporaneous consideration.
21 (h) Indemnifying transfers.--If any lien deemed voidable
22 under subsection (b) is dissolved by the furnishing of a bond or
23 other obligation, the surety on which is indemnified directly or
24 indirectly by the transfer of or the creation of a lien upon any
25 property of an insurer before the filing of a petition under
26 this chapter which results in a liquidation order, the
27 indemnifying transfer or lien shall also be deemed voidable.
28 (i) Discharge from lien.--The property affected by any lien
29 deemed voidable under subsections (b) and (h) shall be
30 discharged from the lien and that property and any of the
19850H1962B2642 - 358 -
1 indemnifying property transferred to or for the benefit of a
2 surety shall pass to the liquidator. However, the court may on
3 due notice order the lien to be preserved for the benefit of the
4 estate and the court may direct that such conveyance be executed
5 as is proper to evidence the title of the liquidator.
6 (j) Summary jurisdiction of Commonwealth Court.--The
7 Commonwealth Court shall have summary jurisdiction of any
8 proceeding by the liquidator to hear and determine the rights of
9 any parties under this section. Reasonable notice of any hearing
10 in the proceeding shall be given to all parties in interest,
11 including the obligee of a releasing bond or other like
12 obligation. Where an order is entered for the recovery of
13 indemnifying property in kind or for the avoidance of an
14 indemnifying lien, the court, upon application of any party in
15 interest, shall ascertain in the same proceeding the value of
16 the property or lien. If that value is less than the amount for
17 which the property serves as indemnity or the amount of the
18 lien, the transferee or lienholder may elect to retain the
19 property or lien upon payment of its value, as ascertained by
20 the court, to the liquidator, within a reasonable time as
21 determined by the court.
22 (k) Liability of certain sureties.--The liability of a
23 surety under a releasing bond or other like obligation shall be
24 discharged to the extent of the value of the indemnifying
25 property recovered or the indemnifying lien nullified and
26 avoided by the liquidator, or where the property is retained
27 under subsection (j) to the extent of the amount paid to the
28 liquidator.
29 (l) Setoffs.--If a creditor has been preferred, and
30 afterward in good faith gives the insurer further credit without
19850H1962B2642 - 359 -
1 security of any kind, for property which becomes a part of the
2 insurer's estate, the amount of the new credit remaining unpaid
3 at the time of the petition may be set off against the
4 preference which would otherwise be recoverable from him.
5 (m) Attorney fees.--If an insurer, within four months before
6 the filing of a successful petition for liquidation under this
7 chapter, or at any time in contemplation of a proceeding to
8 liquidate it, directly or indirectly pays money or transfers
9 property to an attorney at law for services rendered or to be
10 rendered, the transaction may be examined by the court on its
11 own motion or shall be examined by the court on petition of the
12 liquidator and shall be held valid only to the extent of a
13 reasonable amount to be determined by the court. The excess may
14 be recovered by the liquidator for the benefit of the estate.
15 However, if the attorney is in a position of influence in the
16 insurer or its affiliate, payment of any money or the transfer
17 of any property to the attorney for services rendered or to be
18 rendered shall be governed by subsection (b)(4).
19 (n) Personal liability.--Any other person acting on behalf
20 of the insurer who knowingly participates in giving any
21 preference when he has reasonable cause to believe the insurer
22 is or is about to become insolvent at the time of the preference
23 shall be personally liable to the liquidator for the amount of
24 the preference. It is permissible to infer that there is
25 reasonable cause to so believe if the transfer was made within
26 four months before the date of filing of the successful petition
27 for liquidation. Every person receiving any property from the
28 insurer or the benefit thereof as a preference voidable under
29 subsection (b) shall be personally liable therefor and shall be
30 bound to account to the liquidator. This subsection does not
19850H1962B2642 - 360 -
1 prejudice any other claim by the liquidator against any person.
2 § 3955. Claims of holders of void or voidable rights.
3 (a) Creditor claims.--The claims of a creditor who has
4 received or acquired a voidable preference shall not be allowed
5 unless he surrenders the preference or encumbrance. If the
6 avoidance is effected by a proceeding in which a final judgment
7 has been entered, the claim shall not be allowed unless the
8 money is paid or the property is delivered to the liquidator
9 within 30 days from the date of the entering of the final
10 judgment. However, the court having jurisdiction over the
11 liquidation may allow further time if there is an appeal or
12 other continuation of the proceeding.
13 (b) Excused late filing.--A claim allowable under subsection
14 (a) be reason of the avoidance, whether voluntary or
15 involuntary, of a preference or encumbrance may be filed as an
16 excused late filing under section 3961 (relating to filing of
17 claims) if filed within 30 days from the date of the avoidance
18 or within the further time allowed by the court under subsection
19 (a).
20 § 3956. Setoffs and counterclaims.
21 (a) General rule.--Mutual debts or mutual credits between
22 the insurer and another person in connection with any action or
23 proceeding under this chapter shall be set off and the balance
24 only shall be allowed or paid, except as provided in subsection
25 (b).
26 (b) Exceptions.--A setoff or counterclaim shall not be
27 allowed in favor of any person if:
28 (1) the obligation of the insurer to the person would
29 not at the date of the filing of a petition for liquidation
30 entitle the person to share as a claimant in the assets of
19850H1962B2642 - 361 -
1 the insurer;
2 (2) the obligation of the insurer to the person was
3 purchased by or transferred to the person with a view to its
4 being used as a setoff;
5 (3) the obligation of the person is to pay an assessment
6 levied against the members or subscribers of the insurer, or
7 is to pay a balance upon a subscription to the capital stock
8 of the insurer, or is in any other way in the nature of a
9 capital contribution; or
10 (4) the obligation of the person is to pay premiums,
11 whether earned or unearned, to the insurer.
12 § 3957. Assessments.
13 (a) Report to Commonwealth Court.--As soon as practicable
14 but not more than two years from the date of an order of
15 liquidation under this chapter of an insurer issuing assessable
16 policies, the liquidator shall make a report to the Commonwealth
17 Court setting forth:
18 (1) The reasonable value of the assets of the insurer.
19 (2) The insurer's probable total liabilities.
20 (3) The probable aggregate amount of the assessment
21 necessary to pay all claims of creditors and expenses in
22 full, including expenses of administration and costs of
23 collecting the assessment.
24 (4) Whether or not an assessment should be made and for
25 what amount.
26 (b) Levy of assessment.--Upon the basis of the report
27 provided in subsection (a), the Commonwealth Court may levy one
28 or more assessments against all members of the insurer who are
29 subject to assessment. A member shall not be assessed for any
30 loss that occurred when his policy was not in effect. An
19850H1962B2642 - 362 -
1 assessment shall not be made or collection procedures begun
2 after two years from the expiration date of a policy. The
3 maximum assessment against any member for each year or part
4 thereof in which a policy issued to the member was in effect
5 shall not exceed the average annual premium during the life of
6 the policy as written in the policy, including any increase or
7 reduction in premium as the result of any endorsement. Subject
8 to any applicable legal limits on assessability, the aggregate
9 assessment shall be for the amount that the sum of the probable
10 liabilities, the expenses of administration and the estimated
11 cost of collection of the assessment exceeds the value of
12 existing assets, with due regard being given to assessments that
13 cannot be collected economically.
14 (c) Order to show cause.--After levy of assessment under
15 subsection (b), the commissioner shall issue an order directing
16 each member who has not paid the assessment pursuant to the
17 order to show cause why the liquidator should not pursue a
18 judgment. The liquidator shall give notice of the order to show
19 cause by publication and by first class mail to each member
20 liable. The notice shall be mailed to the member's last known
21 address as it appears on the records of the insurer at least 20
22 days before the return day of the order to show cause.
23 (d) Disposition.--If a member does not appear and serve
24 verified objections upon the liquidator on or before the return
25 day of the order to show cause, the court shall make an order
26 adjudging the member liable for the amount of the assessment
27 against him and other indebtedness under subsection (b),
28 together with costs, and the liquidator shall have a judgment in
29 that amount against the member. If, on or before the return day,
30 the member appears and serves verified objections upon the
19850H1962B2642 - 363 -
1 liquidator, the commissioner may hear and determine the matter
2 or may appoint a referee to hear it and make an order as the
3 facts warrant. If the commissioner determines that the
4 objections do not warrant relief from assessment, the member may
5 request the court to review the matter and vacate the order to
6 show cause.
7 (e) Enforcement.--The liquidator may enforce any order or
8 collect any judgment under subsection (d) by any lawful means.
9 § 3958. Liability of reinsurer.
10 The amount recoverable by the liquidator from reinsurers
11 shall not be reduced as a result of delinquency proceedings,
12 regardless of any provision in the reinsurance contract or other
13 agreement. Payment made directly to an insured or other creditor
14 shall not diminish the reinsurer's obligation to the insurer's
15 estate, except when the reinsurance contract provided for direct
16 coverage of an individual named insured and the payment was made
17 in discharge of that obligation.
18 § 3959. Recovery of premiums.
19 (a) General rule.--An insured, agent, broker, premium
20 finance company or other person responsible for the payment of a
21 premium shall pay any unpaid premium for the full policy term
22 due the insurer at the time of the declaration of insolvency,
23 whether earned or unearned, as shown on the records of the
24 insurer. The liquidator may recover from that person any part of
25 an unearned premium that represents his commission. Credits or
26 setoffs shall not be allowed to an agent, broker or premium
27 finance company on account of any credits volunteered by that
28 person.
29 (b) Enforcement by commissioner.--Upon satisfactory evidence
30 of a violation of this section, the commissioner may suspend,
19850H1962B2642 - 364 -
1 revoke or refuse to renew the licenses of the offending party or
2 parties or impose a penalty of not more than $1,000 for each
3 violation of this section by the party or parties.
4 (c) Notice and hearing.--Before the commissioner takes any
5 action under subsection (b), he shall give written notice to the
6 person accused of violating the law, stating specifically the
7 nature of the alleged violation, and fixing a time and place, at
8 least ten days thereafter, when a hearing of the matter shall be
9 held.
10 (d) Appeal.--Any party aggrieved by an action taken by the
11 commissioner under this section may appeal to the Commonwealth
12 Court.
13 § 3960. Proposal for distribution.
14 (a) Application to Commonwealth Court.--Within 120 days of a
15 final determination by the court that an insurer is insolvent or
16 in such a condition that its further transaction of business
17 will be hazardous to its policyholders, its creditors or the
18 public, the liquidator shall apply to the Commonwealth Court for
19 approval of a proposal to disburse assets out of the company's
20 marshaled assets, from time to time, as the assets become
21 available, to any guaranty association in this Commonwealth or
22 in any other state having substantially the same provision of
23 law. The liquidator need not apply if it is reasonable to
24 conclude that the assets of the insolvent insurer will not
25 exceed the amounts necessary to pay the costs of liquidation and
26 the payment of claims of creditors either secured or with a
27 priority higher than the claims of policyholders. A guaranty
28 association shall have the right to petition the Commonwealth
29 Court to review an order of the liquidator concluding the assets
30 will not exceed these costs.
19850H1962B2642 - 365 -
1 (b) Contents of proposal.--The proposal shall at least
2 include provisions for all of the following:
3 (1) Reserving amounts for the payment of expenses of
4 administration and the payment of claims of secured creditors
5 to the extent of the value of the security held and claims
6 having a priority higher than that of the claims of
7 policyholders.
8 (2) Disbursement of assets marshaled to date and
9 subsequent disbursement of assets as they become available.
10 (3) Equitable allocation of disbursements to each of the
11 associations entitled thereto.
12 (4) The securing by the liquidator, from each of the
13 associations entitled to disbursements pursuant to this
14 section, of an agreement to return to the liquidator such
15 assets previously disbursed as are required to pay the claims
16 of secured creditors, claims falling within the priorities
17 referred to in paragraph (1) and the proportional share of
18 the assets disbursed required by the liquidator to make
19 equivalent distribution to creditors of the same class of
20 priority as policyholders if the association has received a
21 disbursement of assets in excess of that available to pay all
22 creditors of the insolvent insurer in the same class of
23 priority as policyholders. An association shall return these
24 assets to the liquidator when needed upon its own initiative
25 or upon demand of the liquidator together with any investment
26 income earned on the assets reimbursed. A bond shall not be
27 required of the association.
28 (c) Reports.--The liquidator may require reports to be made
29 by an association at the time and covering the matters he
30 determines. A full report shall be made by the association to
19850H1962B2642 - 366 -
1 the liquidator when assets received have been disbursed or the
2 obligation of an association to pay covered claims of the
3 insolvent insurer has been fulfilled accounting for all assets
4 so disbursed to the association, all disbursements made
5 therefrom, any interest earned by the association on these
6 assets and any other matter the court directs.
7 (d) Disbursements to associations.--The proposal of the
8 liquidator shall provide for disbursements to the associations
9 in amounts estimated to be at least equal to the claim payments
10 made or to be made thereby for which the associations could
11 assert a claim against the liquidator, and shall further provide
12 that if the assets available for disbursement from time to time
13 do not equal or exceed the amount of the claim payments made or
14 to be made by the associations, then disbursements shall be in
15 the amount of available assets.
16 (e) Notice.--Notice of the application under subsection (a)
17 shall be given to the associations and to the commissioners of
18 insurance of each of the states where the company is licensed.
19 The notice shall be deemed to have been given when sent by
20 registered mail, first class postage prepaid, at least 30 days
21 prior to the submission of the application to the Commonwealth
22 Court. Action on the application may be taken by the court
23 provided the notice has been given and provided further that the
24 liquidator's proposal complies with subsection (b).
25 SUBCHAPTER G
26 DISTRIBUTION OF ESTATE OF LIQUIDATED INSURER
27 Sec.
28 3961. Filing of claims.
29 3962. Proofs of claim.
30 3963. Special claims.
19850H1962B2642 - 367 -
1 3964. Third-party claims.
2 3965. Disputed claims.
3 3966. Claims of surety.
4 3967. Secured claims of creditors.
5 3968. Order of distribution.
6 3969. Liquidator's recommendations to the court.
7 3970. Distribution of assets.
8 3971. Unclaimed and withheld funds.
9 3972. Termination of proceedings.
10 3973. Reopening of liquidation.
11 3974. Disposition of records.
12 3975. External audit of receiver.
13 3976. Federal receivership.
14 § 3961. Filing of claims.
15 (a) Proof of claim.--Proof of all claims shall be filed with
16 the liquidator in the form required by section 3962 (relating to
17 proofs of claim) on or before the last day for filing specified
18 in the notice required under section 3946 (relating to notice to
19 creditors and others), except that proofs of claim for cash
20 surrender values or other investment values in life insurance
21 and annuities need not be filed unless the liquidator expressly
22 so requires.
23 (b) Late filing.--For good cause shown, the liquidator may
24 permit a claimant making a late filing to share in
25 distributions, whether past or future, as if he had timely
26 filed, to the extent that payment will not prejudice the orderly
27 administration of the liquidation. Good cause includes, but is
28 not limited to, the following:
29 (1) That existence of the claim was not known to the
30 claimant and that he filed his claim as promptly as
19850H1962B2642 - 368 -
1 reasonably possible after learning of it.
2 (2) That a transfer to a creditor was avoided under
3 section 3952 (relating to fraudulent transfers prior to
4 petition), 3953 (relating to fraudulent transfers after
5 petition) or 3954 (relating to voidable preferences and
6 liens), or was voluntarily surrendered under section 3955
7 (relating to claims of holders of void or voidable rights),
8 and that the filing satisfies the conditions of section 3955.
9 (3) That valuation under section 3967 (relating to
10 secured claims of creditors) of security held by a secured
11 creditor shows a deficiency, which is filed within 30 days
12 after the valuation.
13 (4) That a claim was contingent and became absolute, and
14 was filed as promptly as reasonably possible after it became
15 absolute.
16 (5) That the claim was the claim of a guaranty
17 association for reimbursement of covered claims paid or
18 expenses incurred subsequent to the last day for filing, if
19 the payments were made and expenses incurred as a result of
20 requirements of law.
21 (c) Other late-filed claims.--The liquidator may consider
22 any claim filed late which is not covered by subsection (b), and
23 permit it to receive distributions which are subsequently
24 declared on any claims of the same or lower priority if the
25 payment does not prejudice the orderly administration of the
26 liquidation. The late-filing claimant shall receive at each
27 distribution the same percentage of the amount allowed on his
28 claim as is then being paid to other claimants of the same
29 priority, plus the same percentage of the amount allowed on his
30 claim as is then being paid to claimants of any lower priority.
19850H1962B2642 - 369 -
1 This shall continue until his claim is paid in full.
2 § 3962. Proofs of claim.
3 (a) Contents.--A proof of claim shall consist of a statement
4 signed by the claimant that includes all of the following
5 information that is applicable:
6 (1) The particulars of the claim including the
7 consideration given for it.
8 (2) The identity and amount of the security on the
9 claim.
10 (3) The payments made on the debt.
11 (4) That the sum claimed is justly owing and that there
12 is no setoff, counterclaim or defense to the claim.
13 (5) Any right of priority of payment or other specific
14 right asserted by the claimants.
15 (6) A copy of any written instrument which is the
16 foundation of the claims.
17 (7) In the case of any third party claim based on a
18 liability policy issued by the insurer, a conditional release
19 of the insured pursuant to section 3964(a) (relating to
20 third-party claims).
21 (8) The names and address of the claimant and any
22 attorney who represents him.
23 A claim shall not be considered or allowed if it does not
24 contain all the required information which may be applicable.
25 The liquidator may require that a prescribed form be and may
26 require that other information and documents be included.
27 (b) Supplementary information.--At any time the liquidator
28 may request the claimant to present information or evidence
29 supplementary to that required under subsection (a), take
30 testimony under oath, require production of affidavits or
19850H1962B2642 - 370 -
1 depositions or otherwise obtain additional information or
2 evidence.
3 (c) Use of judgments and orders.--A judgment or order
4 against an insured or the insurer entered after the date of
5 filing of a successful petition for liquidation, or a judgment
6 or order against an insured or the insurer entered at any time
7 by default or by collusion, need not be considered as evidence
8 of liability or of quantum of damages.
9 (d) Claim of guaranty association.--A claim of a guaranty
10 association for reimbursement of payments made for the payments
11 of covered claims and for expenses shall be in the form and
12 contain the substantiation agreed to by the guaranty association
13 and the liquidator subject to review by the Commonwealth Court.
14 § 3963. Special claims.
15 (a) Certain contingent third-party claims.--The claim of a
16 third party which is contingent only on his first obtaining a
17 judgment against the insured shall be considered and allowed as
18 if there were no such contingency.
19 (b) Claims affected by termination of coverage.--Any claim
20 that would have become absolute if there had been no termination
21 of coverage under section 3943 (relating to continuation of
22 coverage), and which is not covered by insurance acquired to
23 replace the terminated coverage, shall be allowed as if the
24 coverage had remained in effect, unless at least ten days before
25 the insured event occurred either the claimant had actual notice
26 of the termination or notice was mailed to him under section
27 3946 (relating to notice to creditors and others) or 3947
28 (relating to duties of agents). If allowed the claim shall share
29 in distributions under section 3968(6) (relating to order of
30 distribution).
19850H1962B2642 - 371 -
1 (c) Allowance of contingent claims.--A claim may be allowed
2 even if contingent, if it is filed in accordance with section
3 3961(b) (relating to filing of claims). It may be allowed and
4 may participate in all distributions declared after it is filed
5 to the extent that it does not prejudice the orderly
6 administration of the liquidation.
7 (d) Claims due except for passage of time.--Claims that are
8 due except for the passage of time shall be treated as absolute
9 claims are treated, except that such claims may be discounted at
10 the legal rate of interest.
11 (e) Workmen's compensation security funds.--The State
12 Treasurer in his capacity as custodian of the workmen's
13 compensation security funds may file a claim with the liquidator
14 for all sums paid or to be paid from those funds.
15 § 3964. Third-party claims.
16 (a) General rule.--Whenever any third party asserts a cause
17 of action against an insured of an insurer in liquidation the
18 third party may file a claim with the liquidator. The filing of
19 the claim shall operate as a release of the insured's liability
20 to the third party on that cause of action in the amount of the
21 applicable policy limit, but the liquidator shall also insert in
22 any form used for the filing of third party claims appropriate
23 language to constitute this release. The release shall be void
24 if the insurance coverage is avoided by the liquidator.
25 (b) Filing of claim by insured.--Whether or not the third
26 party files a claim, the insured may file a claim on his own
27 behalf in the liquidation. If the insured fails to file a claim
28 by the date for filing claims specified in the order of
29 liquidation or within 60 days after mailing of the notice
30 required by section 3946(a) (relating to notice to creditors and
19850H1962B2642 - 372 -
1 others), whichever is later, he shall be deemed to be an
2 unexcused late filer.
3 (c) Allowance of claims of an insured.--The liquidator shall
4 make his recommendations to the court under section 3969
5 (relating to liquidator's recommendations to the court) for the
6 allowance of an insured's claim under subsection (b) after
7 consideration of the probable outcome of any pending action
8 against the insured on which the claim is based, the probable
9 damages recoverable in the action and the probable costs and
10 expenses of defense. Those recommendations which are not
11 modified by the court within a period of 60 days following
12 submission by the liquidator shall be treated by the liquidator
13 as allowed recommendations, subject to later modification or to
14 rulings made by the court under section 3965 (relating to
15 disputed claims). After allowance by the court, the liquidator
16 shall withhold any distributions payable on the claim, pending
17 the outcome of litigation and negotiation with the insured.
18 Whenever appropriate, he shall reconsider the claim on the basis
19 of additional information and amend his recommendations to the
20 court, which may amend its allowance as appropriate. As claims
21 against the insured are settled, the claimant shall be paid from
22 the amount withheld the same percentage distribution as was paid
23 on other claims of like priority, based on the lesser of either
24 the amount allowed on the claims by the court or the amount
25 actually recovered from the insured by action or paid by
26 agreement plus the reasonable costs and expenses of defense.
27 After all claims are settled, any sum remaining from the amount
28 withheld shall revert to the undistributed assets of the
29 insurer. Delay in final payment under this subsection shall not
30 be a reason for unreasonable delay of final distribution and
19850H1962B2642 - 373 -
1 discharge of the liquidator.
2 (d) Proration of claims.--Whenever several claims founded
3 upon one policy are filed, whether by third parties or as claims
4 by the insured under this section, and the aggregate allowed
5 amount of the claims to which the same limit of liability in the
6 policy is applicable exceeds that limit, then each claim as
7 allowed shall be reduced a proportionate amount so that the
8 total equals the policy limit. Claims by the insured shall be
9 evaluated as in subsection (c). If any insured's claim is
10 subsequently reduced under subsection (c), the amount thus freed
11 shall be apportioned pro rata among the claims which have been
12 reduced under this subsection.
13 § 3965. Disputed claims.
14 (a) Determination.--When a claim is denied in whole or in
15 part by the liquidator, written notice of the determination
16 shall be given to the claimant and his attorney by first class
17 mail at the address shown in the proof of claim. Within 60 days
18 from the mailing of the notice, the claimant may file his
19 objections with the court. If no such filing is made, the
20 claimant shall not further object to the determination.
21 (b) Hearing.--Whenever objections are filed with the
22 liquidator, the liquidator shall ask the court for a hearing as
23 soon as practicable and give notice of the hearing by first
24 class mail to the claimant or his attorney and to any other
25 persons directly affected, not less than 10 nor more than 30
26 days before the date of the hearing. The matter may be heard by
27 the court or by a court-appointed referee who shall submit
28 findings of fact along with his recommendation.
29 § 3966. Claims of surety.
30 (a) Filing of claim.--Whenever a creditor whose claim
19850H1962B2642 - 374 -
1 against an insurer is secured, in whole or in part, by the
2 undertaking of another person, fails to prove and file that
3 claim, the other person may do so in the creditor's name, and
4 shall be subrogated to the rights of the creditor, whether the
5 claim has been filed by the creditor or by the other person in
6 the creditor's name, to the extent that he discharges the
7 undertaking. In the absence of an agreement with the creditor to
8 the contrary, the other person shall not be entitled to any
9 distribution, however, until the amount paid to the creditor on
10 the undertaking plus the distributions paid on the claim from
11 the insurer's estate to the creditor equals the amount of the
12 entire claim of the creditor. Any excess received by the
13 creditor shall be held by him in trust for the other person.
14 (b) Definition.--As used in this section the term "other
15 person" does not include a guaranty association.
16 § 3967. Secured claims of creditors.
17 (a) Valuation.--The value of any security held by a secured
18 creditor shall be determined as the court directs, either by
19 converting the security into money according to the terms of the
20 agreement pursuant to which the security was delivered to the
21 creditor, or by agreement, arbitration, compromise or litigation
22 between the creditor and the liquidator. The determination shall
23 be under the supervision and control of the court with due
24 regard for the recommendation of the liquidator.
25 (b) Treatment of claim.--The amount so determined shall be
26 credited upon the secured claim, and any deficiency shall be
27 treated as an unsecured claim. If the claimant surrenders his
28 security to the liquidator, the entire claim shall be allowed as
29 if unsecured.
30 § 3968. Order of distribution.
19850H1962B2642 - 375 -
1 The order of distribution of claims from the insurer's estate
2 shall be in accordance with the order in which each class of
3 claims is set forth in this section. Every claim in each class
4 shall be paid in full or adequate funds retained for the payment
5 before the members of the next class receive any payment.
6 Subclasses shall not be established within any class. The order
7 of classes is as follows:
8 (1) Debts due to employees for services performed to the
9 extent that they do not exceed $1,000 and represent payment
10 for services performed within one year before the filing of
11 the petition for liquidation. Officers and directors shall
12 not be entitled to the benefit of this priority. This
13 priority shall be in lieu of any other similar priority which
14 may be authorized by law as to wages or compensation of
15 employees.
16 (2) The costs and expenses of administration, including,
17 but not limited to, the following:
18 (i) The actual and necessary costs of preserving or
19 recovering the assets of the insurer.
20 (ii) Compensation for all services rendered in the
21 liquidation.
22 (iii) Any necessary filing fees.
23 (iv) Fees and mileage payable to witnesses.
24 (v) Reasonable attorney fees.
25 (vi) The expenses of a guaranty association in
26 handling claims.
27 (3) All claims under policies for losses wherever
28 incurred, including third-party claims, and all claims
29 against the insurer for liability for bodily injury or for
30 injury to or destruction of tangible property which are not
19850H1962B2642 - 376 -
1 under policies. All claims under life insurance and annuity
2 policies, whether for death proceeds, annuity proceeds or
3 investment values shall be treated as loss claims. That
4 portion of any loss for which indemnification is provided by
5 other benefits or advantages recovered by the claimant shall
6 not be included in this class, other than benefits or
7 advantages recovered or recoverable in discharge of familial
8 obligations of support or by way of succession at death or as
9 proceeds of life insurance, or as gratuities. A payment made
10 by an employer to his employee shall not be treated as a
11 gratuity.
12 (4) Claims under nonassessable policies for unearned
13 premium or other premium refunds and claims of general
14 creditors.
15 (5) Claims of the Federal or any state or local
16 government. Claims, including those of any governmental body,
17 for a penalty or forfeiture shall be allowed in this class
18 only to the extent of the pecuniary loss sustained from the
19 act, transaction or proceeding out of which the penalty or
20 forfeiture arose, with reasonable and actual costs occasioned
21 thereby. The remainder of the claims shall be postponed to
22 the class of claims under paragraph (7).
23 (6) The following claims:
24 (i) Claims under section 3963 (relating to special
25 claims), to the extent that the claims were disallowed
26 under that section.
27 (ii) Claims filed late.
28 (iii) Claims or portions of claims, payment of which
29 is provided by other benefits or advantages recovered by
30 the claimant.
19850H1962B2642 - 377 -
1 (7) Surplus or contribution notes, or similar
2 obligations, and premium refunds on assessable policies.
3 Payments to members of domestic mutual insurance companies
4 shall be limited in accordance with law.
5 (8) The claims of shareholders or other owners.
6 § 3969. Liquidator's recommendations to the court.
7 (a) Report of claims.--The liquidator shall review all
8 claims duly filed in the liquidation and shall make such further
9 investigation as is necessary. He may compromise or negotiate
10 the amount for which claims will be recommended to the court.
11 Unresolved disputes shall be determined under section 3965
12 (relating to disputed claims). As soon as practicable, he shall
13 present to the court a report of the claims against the insurer
14 with his recommendations. The report shall include the name and
15 address of each claimant, the particulars of the claim and the
16 amount of the claim finally recommended, if any.
17 (b) Court approval.--The court may approve, disapprove or
18 modify the report on claims by the liquidator. However, the
19 liquidator's agreements with other parties shall be final and
20 binding on the court to the extent permitted by law. The
21 recommendations which are not modified by the court within a
22 period of 60 days following submission by the liquidator shall
23 be treated by the liquidator as allowed recommendations, subject
24 to later modification or to rulings made by the court under
25 section 3965. A claim under a policy of insurance shall not be
26 allowed for an amount in excess of the applicable policy limits.
27 § 3970. Distribution of assets.
28 Under the direction of the court, the liquidator shall pay
29 distributions in a manner that will assure the proper
30 recognition of priorities and a reasonable balance between the
19850H1962B2642 - 378 -
1 expeditious completion of the liquidation and the protection of
2 unliquidated and undetermined claims, including third party
3 claims. Distribution of assets in kind may be made at valuations
4 set by agreement between the liquidator and the creditor and
5 approved by the court.
6 § 3971. Unclaimed and withheld funds.
7 (a) Unclaimed funds.--All unclaimed funds subject to
8 distribution remaining with the liquidator when he is ready to
9 apply to the court for discharge, including the amount
10 distributable to any creditor, shareholder, member or other
11 person who is unknown or cannot be found, shall be deposited
12 with the State Treasurer. Any amount on deposit not claimed
13 within six years from the discharge of the liquidator shall be
14 deemed to have been abandoned, shall be escheated without formal
15 escheat proceedings and shall be paid into the State Treasury
16 and deposited in the General Fund.
17 (b) Withheld funds.--All funds withheld under section 3964
18 (relating to third-party claims) and not distributed shall upon
19 discharge of the liquidator be deposited with the State
20 Treasurer and paid by him in accordance with section 3964. Any
21 sums remaining, which under section 3964 would revert to the
22 undistributed assets of the insurer, shall be transferred to the
23 State Treasurer and become the property of the Commonwealth
24 under subsection (a), unless the commissioner petitions the
25 court to reopen the liquidation under section 3973 (relating to
26 reopening of liquidation).
27 § 3972. Termination of proceedings.
28 (a) Discharge of liquidator.--When all assets justifying the
29 expense of collection and distribution have been collected and
30 distributed under this chapter, the liquidator shall apply to
19850H1962B2642 - 379 -
1 the court for discharge. The court may grant the discharge and
2 make any other orders including an order to transfer any
3 remaining funds that are uneconomic to distribute.
4 (b) Application for order.--Any other person may apply to
5 the court at any time for an order under subsection (a). If the
6 application is denied, the applicant shall pay the costs and
7 expenses of the liquidator in resisting the application,
8 including a reasonable attorney fee.
9 § 3973. Reopening of liquidation.
10 After the liquidation proceeding has been terminated and the
11 liquidator discharged, the commissioner or other interested
12 party may at any time petition the Commonwealth Court to reopen
13 the proceedings for good cause, including the discovery of
14 additional assets. If the court is satisfied that there is
15 justification for reopening, it shall so order.
16 § 3974. Disposition of records.
17 Whenever it appears to the commissioner that the records of
18 any insurer in process of liquidation or completely liquidated
19 are no longer useful, he may recommend to the court which
20 records should be retained for future reference and which should
21 be destroyed.
22 § 3975. External audit of receiver.
23 The Commonwealth Court may cause audits to be made of the
24 books of the commissioner relating to any receivership
25 established under this chapter. A report of each audit shall be
26 filed with the commissioner and with the court. The books,
27 records and other documents of the receivership shall be made
28 available to the auditor at any time without notice. The expense
29 of each audit shall be considered a cost of administration of
30 the receivership.
19850H1962B2642 - 380 -
1 § 3976. Federal receivership.
2 (a) Appointment.--Whenever liquidation of a domestic insurer
3 or an alien insurer domiciled in this Commonwealth would be
4 facilitated by a Federal receivership, and when any ground
5 exists upon which the commissioner could petition the court for
6 an order of rehabilitation or liquidation under section 3931
7 (relating to grounds for rehabilitation) or 3941 (relating to
8 grounds for liquidation), or if an order of rehabilitation or
9 liquidation has already been entered, the commissioner may
10 request another commissioner of another state to petition the
11 Federal court for the appointment of a Federal receiver. The
12 commissioner may intervene in any action to appoint a Federal
13 receiver to support or oppose the petition, and may accept
14 appointment as the receiver if he is so designated. As much of
15 this chapter shall apply to the receivership as can be made
16 applicable and is appropriate. Upon motion of the commissioner,
17 the Commonwealth Court shall relinquish all jurisdiction over
18 the insurer for purposes of rehabilitation or liquidation.
19 (b) Commissioner as receiver.--If the commissioner is
20 appointed receiver under this section, he shall comply with any
21 requirements necessary to give him title to and control over the
22 assets and affairs of the insurer.
23 SUBCHAPTER H
24 INTERSTATE RELATIONS
25 Sec.
26 3981. Conservation of property of foreign or alien insurers.
27 3982. Liquidation of property of foreign or alien insurers.
28 3983. Foreign domiciliary receivers in other states.
29 3984. Ancillary formal proceedings.
30 3985. Ancillary summary proceedings.
19850H1962B2642 - 381 -
1 3986. Claims of nonresidents against domiciliary insurers.
2 3987. Claims of residents against insurers of reciprocal
3 states.
4 3988. Execution proceedings.
5 3989. Interstate priorities.
6 3990. Subordination of claims for lack of cooperation.
7 § 3981. Conservation of property of foreign or alien insurers.
8 (a) Petition to Commonwealth Court.--If a domiciliary
9 liquidator has not been appointed, the commissioner may apply to
10 the Commonwealth Court by verified petition for an order
11 directing him to conserve the property of an alien insurer not
12 domiciled in this Commonwealth or a foreign insurer on any one
13 or more of the following grounds:
14 (1) Any of the grounds in section 3931 (relating to
15 grounds for rehabilitation).
16 (2) That any of its property has been sequestered by
17 official action in its domiciliary state or in any other
18 state.
19 (3) That enough of its property has been sequestered in
20 a foreign country to give reasonable cause to fear that the
21 insurer is or may become insolvent.
22 (4) That its certificate of authority to do business in
23 this Commonwealth has been revoked or that none was ever
24 issued and there are residents of this Commonwealth with
25 outstanding claims or outstanding policies.
26 (b) Order.--The court may issue the order in whatever terms
27 it deems appropriate. The filing or recording of the order with
28 the recorder of deeds of Dauphin County shall impart the same
29 notice as a deed, bill of sale or other evidence of title duly
30 filed or recorded with that recorder of deeds would have
19850H1962B2642 - 382 -
1 imparted.
2 (c) Petitions by conservator.--The conservator may at any
3 time petition for and the court may grant an order under section
4 3982 (relating to liquidation of property of foreign or alien
5 insurers) to liquidate the assets of a foreign or alien insurer
6 under conservation or, if appropriate, for an order under
7 section 3984 (relating to ancillary formal proceedings), to be
8 appointed ancillary receiver.
9 (d) Petition to terminate.--The conservator may at any time
10 petition the court for an order terminating conservation of an
11 insurer. If the court finds that the conservation is no longer
12 necessary, it shall order that the insurer be restored to
13 possession of its property and the control of its business. The
14 court may also make such a finding and issue such an order at
15 any time upon motion of any interested party.
16 § 3982. Liquidation of property of foreign or alien insurers.
17 (a) Petition to Commonwealth Court.--If a domiciliary
18 receiver has not been appointed, the commissioner may apply to
19 the Commonwealth Court by petition for an order directing him to
20 liquidate the assets found in this Commonwealth of a foreign
21 insurer or an alien insurer not domiciled in this Commonwealth,
22 on any of the grounds in section 3931 (relating to grounds for
23 rehabilitation) or 3981 (relating to conservation of property of
24 foreign or alien insurers).
25 (b) Order to liquidate.--If it appears to the court that the
26 best interests of creditors, policyholders and the public so
27 require, the court may issue an order to liquidate in whatever
28 terms it deems appropriate. The filing or recording of the order
29 with the clerk of the Commonwealth Court shall impart the same
30 notice as a deed, bill of sale, or other evidence of title duly
19850H1962B2642 - 383 -
1 filed or recorded with that recorder of deeds would have
2 imparted.
3 (c) Liquidation as ancillary receiver.--If a domiciliary
4 liquidator is appointed in a reciprocal state while a
5 liquidation is proceeding under this section, the liquidator
6 under this section shall act as ancillary receiver under section
7 3984 (relating to ancillary formal proceedings). If a
8 domiciliary liquidator is appointed in a nonreciprocal state
9 while a liquidation is proceeding under this section, the
10 liquidator under this section may petition the court for
11 permission to act as ancillary receiver under section 3984.
12 (d) Petition to Federal district court.--On the same grounds
13 as are specified in subsection (a), the commissioner may
14 petition any appropriate Federal district court to be appointed
15 receiver to liquidate that portion of the insurer's assets and
16 business over which the court will exercise jurisdiction, or any
17 lesser part thereof that the commissioner deems desirable for
18 the protection of the policyholders and creditors in this
19 Commonwealth. The commissioner may accept appointment as Federal
20 receiver if another person files a petition.
21 § 3983. Foreign domiciliary receivers in other states.
22 (a) Insurer domiciled in reciprocal state.--The domiciliary
23 liquidator of an insurer domiciled in a reciprocal state shall
24 be vested by operation of law with the title to all of the
25 property, contracts and rights of action, and all of the books,
26 accounts and other records of the insurer located in this
27 Commonwealth. The date of vesting shall be the date of the
28 filing of the petition, if that date is specified by the
29 domiciliary law for the vesting of property in the domiciliary
30 state. Otherwise, the date of vesting shall be the date of entry
19850H1962B2642 - 384 -
1 of the order directing possession to be taken. The domiciliary
2 liquidator shall have the immediate right to recover balances
3 due from agents and to obtain possession of the books, accounts
4 and other records of the insurer located in this Commonwealth.
5 He also shall have the right to recover the other assets of the
6 insurer located in this Commonwealth, subject to section 3984
7 (relating to ancillary formal proceedings).
8 (b) Insurer not domiciled in a reciprocal State.--If a
9 domiciliary liquidator is appointed for an insurer not domiciled
10 in a reciprocal state, the commissioner shall be vested by
11 operation of law with the title to all of the property,
12 contracts and rights of action, and all of the books, accounts
13 and other records of the insurer located in this Commonwealth,
14 at the same time that the domiciliary liquidator is vested with
15 title in the state of domicile. The commissioner of this
16 Commonwealth may petition for a conservation or liquidation
17 order under section 3981 (relating to conservation of property
18 of foreign or alien insurers) or 3982 (relating to liquidation
19 of property of foreign or alien insurers), or for an ancillary
20 receivership under section 3984, or after approval by the
21 Commonwealth Court may transfer title to the domiciliary
22 liquidator, as the interests of justice and the equitable
23 distribution of the assets require.
24 (c) Claims of residents.--Claimants residing in this
25 Commonwealth may file claims with the liquidator or ancillary
26 receiver, if any, in this Commonwealth, or with the domiciliary
27 liquidator, if the law of the domiciliary state permits. The
28 claims must be filed on or before the last date fixed for the
29 filing of claims in the domiciliary liquidation proceedings.
30 (d) Powers and duties of ancillary receiver.--Subject to the
19850H1962B2642 - 385 -
1 provisions of this section, the ancillary receiver and his
2 deputies shall have the same powers and be subject to the same
3 duties with respect to the administration of assets as a
4 liquidator of an insurer domiciled in this Commonwealth.
5 § 3984. Ancillary formal proceedings.
6 (a) Petition to Commonwealth Court.--If a domiciliary
7 liquidator has been appointed for an insurer not domiciled in
8 this Commonwealth, the commissioner may petition the
9 Commonwealth Court requesting appointment as ancillary receiver
10 in this Commonwealth:
11 (1) if he finds that there are sufficient assets of the
12 insurer located in this Commonwealth to justify the
13 appointment of an ancillary receiver; or
14 (2) if the protection of creditors or policyholders in
15 this Commonwealth so requires.
16 (b) Order appointing receiver.--The court may order the
17 appointment of an ancillary receiver in whatever terms it deems
18 appropriate. The filing or recording of the order with the
19 recorder of deeds of Dauphin County shall impart the same notice
20 as a deed, bill of sale or other evidence of title duly filed or
21 recorded with that recorder of deeds would have imparted.
22 (c) Ancillary receivers appointed in this Commonwealth.--
23 When a domiciliary liquidator has been appointed in a reciprocal
24 state, the ancillary receiver appointed in this Commonwealth
25 under subsection (a) shall have the sole right to recover all
26 the assets of the insurer in this Commonwealth not already
27 recovered by the domiciliary liquidator. The ancillary receiver
28 shall, as soon as practicable, liquidate from his respective
29 securities those special deposit claims and secured claims which
30 are proved and allowed in the ancillary proceedings in this
19850H1962B2642 - 386 -
1 Commonwealth and shall pay the necessary expenses of the
2 proceedings. He shall promptly transfer all remaining assets,
3 books, accounts and records to the domiciliary liquidator.
4 Subject to this section, the ancillary receiver and his deputies
5 shall have the same powers and be subject to the same duties
6 with respect to the administration of assets as a liquidator of
7 an insurer domiciled in this Commonwealth.
8 (d) Ancillary receivers appointed in reciprocal states.--
9 When a domiciliary liquidator has been appointed in this
10 Commonwealth, ancillary receivers appointed in reciprocal states
11 shall have, as to assets and books, accounts and other records
12 in their respective states, corresponding rights, duties and
13 powers to those provided in subsection (c) for ancillary
14 receivers appointed in this Commonwealth.
15 § 3985. Ancillary summary proceedings.
16 The commissioner in his sole discretion may institute
17 proceedings under Subchapter C (relating to summary proceedings)
18 at the request of the appropriate insurance official of the
19 domiciliary state of any foreign or alien insurer having
20 property located in this Commonwealth.
21 § 3986. Claims of nonresidents against domiciliary insurers.
22 (a) Filing of claims.--In a liquidation proceeding
23 instituted in this Commonwealth against an insurer domiciled in
24 this Commonwealth, claimants residing in foreign countries or in
25 nonreciprocal states shall file claims in this Commonwealth, and
26 claimants residing in reciprocal states may file claims either
27 with the ancillary receivers, if any, in their respective
28 states, or with the domiciliary liquidator. In reciprocal
29 states, if an ancillary receiver has been appointed, a guaranty
30 association of that state shall file its claims with the
19850H1962B2642 - 387 -
1 ancillary receiver. Claims shall be filed on or before the last
2 dates fixed for the filing of claims in the domiciliary
3 liquidation proceeding.
4 (b) Proving claims.--Claims of persons residing in
5 reciprocal states may be proved either in the liquidation
6 proceeding in this Commonwealth under this chapter, or in
7 ancillary proceedings, if any, in the reciprocal states. If
8 notice of the claim and opportunity to appear and be heard is
9 afforded the domiciliary liquidator of this Commonwealth under
10 section 3987 (relating to claims of residents against insurers
11 of reciprocal states), the final allowance of claims by the
12 courts in ancillary proceedings in reciprocal states shall be
13 conclusive as to amount and as to priority against special
14 deposits or other security located in such ancillary states, but
15 shall not be conclusive with respect to priorities against
16 general assets under section 3968 (relating to order of
17 distribution).
18 § 3987. Claims of residents against insurers of reciprocal
19 states.
20 (a) Filing of claims.--In a liquidation proceeding in a
21 reciprocal state against an insurer domiciled in that state,
22 claimants against the insurer who reside in this Commonwealth
23 may file claims either with the ancillary receiver, if any, in
24 this Commonwealth or with the domiciliary liquidator. Claims
25 must be filed on or before the last dates fixed for the filing
26 of claims in the domiciliary liquidation proceeding.
27 (b) Where claims may be proved.--Claims belonging to
28 claimants residing in this Commonwealth may be proved either in
29 the domiciliary state under the law of that state, or in
30 ancillary proceedings, if any, in this Commonwealth. If a
19850H1962B2642 - 388 -
1 claimant elects to prove his claim in this Commonwealth, he
2 shall file his claim with the liquidator in the manner provided
3 in sections 3961 (relating to filing of claims) and 3962
4 (relating to proofs of claim). The ancillary receiver shall make
5 his recommendation to the court as under section 3969 (relating
6 to liquidator's recommendations to the court). He shall also
7 arrange a date for hearing if necessary under section 3965
8 (relating to disputed claims) and shall give notice to the
9 liquidator in the domiciliary state, either by registered mail
10 or by personal service, at least 40 days prior to the date set
11 for hearing. If the domiciliary liquidator, within 30 days after
12 the giving of notice, gives notice in writing to the ancillary
13 receiver and to the claimant, either by registered mail or by
14 personal service, of his intention to contest the claim, he may
15 appear in any proceeding in this Commonwealth involving the
16 adjudication of the claims. The final allowance of the claim by
17 the courts of this Commonwealth shall be conclusive as to amount
18 and as to priority against special deposits or other security
19 located in this Commonwealth.
20 § 3988. Execution proceedings.
21 During the pendency in this Commonwealth or any other state
22 of a liquidation proceeding, whether called by that name or not,
23 no proceeding in the nature of an attachment, garnishment or
24 levy of execution shall be commenced or maintained in this
25 Commonwealth against the delinquent insurer or its assets.
26 § 3989. Interstate priorities.
27 (a) Order of distribution.--In a liquidation proceeding in
28 this Commonwealth involving one or more reciprocal states, the
29 order of distribution of the domiciliary state shall control as
30 to all claims of residents of this Commonwealth and reciprocal
19850H1962B2642 - 389 -
1 states. These claims shall have equal priority of payment from
2 general assets regardless of where the assets are located.
3 (b) Special deposit claims.--The owners of special deposit
4 claims against an insurer for which a liquidator is appointed in
5 this Commonwealth or any other state shall be given priority
6 against the special deposits in accordance with the statutes
7 governing the creation and maintenance of the deposits. If there
8 is a deficiency in any deposit, so that the claims secured by it
9 are not fully discharged from it, the claimants may share in the
10 general assets. However, this sharing shall be deferred until
11 general creditors, and also claimants against other special
12 deposits who have received smaller percentages from their
13 respective special deposits, are paid percentages of their
14 claims equal to the percentage paid from the special deposit.
15 (c) Secured claims.--The owner of a secured claim against an
16 insurer for which a liquidator has been appointed in this
17 Commonwealth or any other state may surrender his security and
18 file his claim as a general creditor, or the claim may be
19 discharged by resort to the security in accordance with section
20 3967 (relating to secured claims of creditors), in which case
21 any deficiency shall be treated as an unsecured claim against
22 the general assets of the insurer.
23 § 3990. Subordination of claims for lack of cooperation.
24 If an ancillary receiver in another state or foreign country,
25 whether called by that name or not, fails to transfer to the
26 domiciliary liquidator in this Commonwealth any assets within
27 his control other than special deposits, diminished only by the
28 expenses of the ancillary receivership, the claims filed in the
29 ancillary receivership, other than special deposit claims or
30 secured claims, shall be placed in the class of claims under
19850H1962B2642 - 390 -
1 section 3968(6) (relating to order of distribution).
1 CHAPTER 41
2 BENEFICIAL SOCIETIES
3 Sec.
4 4101. Short title of chapter.
5 4102. Applicability of chapter.
6 4103. Limitation of benefits.
7 4104. Selection of directors.
8 4105. Holding management or agency corporations.
9 4106. Reserves.
10 4107. Investment of surplus.
11 4108. Annual statements.
12 4109. Examinations.
13 4110. Filing and approval of documents.
14 4111. Qualifications of solicitors and agents.
15 4112. Inclusion of certain documents in policy.
16 4113. Criminal penalties.
17 4114. Civil penalties.
18 4115. Transfer restrictions.
19 § 4101. Short title of chapter.
20 This chapter shall be known and may be cited as the
21 Beneficial Society Act.
22 § 4102. Applicability of chapter.
23 This chapter applies to the following beneficial societies:
24 (1) All beneficial societies incorporated under general
25 or special laws since October 13, 1857.
26 (2) All beneficial societies incorporated before
27 September 1, 1937, which have accepted the provisions of the
28 Constitution of Pennsylvania and the general insurance laws
19850H1962B2642 - 391 -
1 enacted since October 13, 1857.
2 (3) All beneficial societies incorporated under any
3 general or special law prior to October 13, 1857, which by
4 the terms of their charters or the statutes under which they
5 were incorporated hold charters subject to alteration or
6 revocation.
7 (b) Exclusions.--This chapter does not apply to:
8 (1) Beneficial associations which are formed by or for
9 the exclusive benefit of those who, at the time of becoming
10 members, are engaged in educational work in any department or
11 district of the public school system of this Commonwealth or
12 in any college or university in this Commonwealth, and which
13 issued beneficiary certificates only to such members.
14 (2) Fraternal, charitable or secret societies issuing
15 beneficial certificates and paying benefits to their
16 membership through the lodge system.
17 (3) Insurance or relief associations formed by or for
18 the exclusive benefit of employees of corporations or firms,
19 or formed by or for the exclusive benefit of members of any
20 religious corporation or association.
21 (4) Associations whose benefits are limited to post-
22 mortem assessments of the members.
23 (c) Applicability of insurance law.--Except as otherwise
24 provided in this chapter and in section 4505(f) (relating to
25 applicability of chapter), the business and affairs of every
26 beneficial society shall be run and regulated under the law
27 relating to insurance companies.
28 § 4103. Limitation of benefits.
29 Any beneficial society may pay or enter into contracts to pay
30 money or benefits, not exceeding $20 per week in the event of
19850H1962B2642 - 392 -
1 sickness, accident or disability, and not exceeding $250 in the
2 event of death.
3 § 4104. Selection of directors.
4 (a) General rule.--The annual meeting of members for
5 election of directors of a beneficial society shall be held at
6 such time, prior to May 1 in every year, as the bylaws of the
7 society may direct. Notice of the time and place of meeting
8 shall be given to the members in accordance with the bylaws. At
9 this annual meeting, the members shall elect by ballot the
10 number of directors stated in the articles of association or the
11 bylaws, which shall be not less than 5 nor more than 13. Each
12 director shall hold office for the term for which he is elected
13 and until his successor has been elected and qualified.
14 (b) Terms of service.--Except as otherwise provided in the
15 bylaws, each director shall be elected for a term of one year.
16 If the articles or bylaws of a beneficial society so provide,
17 the directors may be classified in respect to the time for which
18 they shall hold office. In such case, each class shall be as
19 nearly equal in number as possible, the term of office of at
20 least one class shall expire in each year, and the members of a
21 class shall not be elected for a shorter period than one year or
22 for a longer period than three years. At each ensuing election
23 of directors after classification, only the number of directors
24 equal to the number of the class whose terms expire at the time
25 of the election shall be elected, and these directors shall be
26 elected for the longest term for which any class may have been
27 elected, as provided in this section.
28 (c) Vacancies.--Except as otherwise provided in the bylaws,
29 vacancies in the board of directors shall be filled by the
30 remaining members of the board. Each person so elected shall be
19850H1962B2642 - 393 -
1 a director until his successor is elected by the shareholders or
2 members, who may make such election at the next annual meeting
3 of the shareholders or members or at any special meeting called
4 for that purpose and held prior thereto.
5 § 4105. Holding, management or agency corporations.
6 The business and affairs of each beneficial society shall be
7 conducted and managed by its elected officers. Contracts or
8 agreements shall not be entered into by any society with any
9 holding, management or agency corporation or other person by
10 which the control of the management of the society would pass to
11 such a corporation or other person or through which percentages
12 or portions of the members' dues and other payments would be
13 paid over to them.
14 § 4106. Reserves.
15 (a) Determination of amount.--A beneficial society doing
16 business in this Commonwealth shall, at all times, maintain
17 reserves as follows:
18 (1) On the life portion, contained in all policies or
19 contracts, reserves shall be based upon a standard table of
20 mortality, approved by the commissioner, with interest at a
21 rate also approved by the commissioner, and such reserves
22 shall be computed in accordance with the requirements of this
23 title for the computation of the reserve liability for life
24 insurance.
25 (2) On the disability portion, except in the case of
26 noncancelable health and accident insurance issued on and
27 after January 1, 1950, contained in all policies or
28 contracts, reserves shall be computed in accordance with the
29 requirements of this title for the computation of the
30 unearned premium reserve liability for casualty insurance.
19850H1962B2642 - 394 -
1 (3) For all definite and outstanding claims, reserves
2 shall be calculated in accordance with the requirements of
3 this title for the computation of reserves against unpaid
4 losses in casualty insurance, other than losses under
5 noncancelable health and accident insurance issued on and
6 after January 1, 1950, compensation insurance or liability
7 insurance.
8 (4) On the noncancelable health and accident insurance
9 portion contained in all policies or contracts issued on and
10 after January 1, 1950, reserves shall be computed in
11 accordance with the requirements of this title for the
12 computation of policy and loss reserves for noncancelable
13 health and accident insurance.
14 (b) Investment of reserves.--A sum equal to the amount of
15 the reserves required by this section shall be invested in those
16 investments authorized by this title for the investment of the
17 reserve funds of life insurance companies.
18 (c) Approval by commissioner.--The commissioner shall each
19 year approve the computation of the reserve liability, as of
20 December 31 of the preceding year, of every beneficial society
21 authorized to make insurance on lives in this Commonwealth.
22 (d) Suspension of authority.--Whenever any beneficial
23 society doing business in this Commonwealth does not have on
24 hand the net value of all policies in force after all other
25 debts and claims against it have been provided for, the
26 commissioner shall prohibit the beneficial society from issuing
27 new policies until its funds become equal to its liabilities.
28 (e) Definitions--As used in this section the term
29 "noncancelable health and accident insurance" means insurance
30 against disability resulting from sickness, ailment or bodily
19850H1962B2642 - 395 -
1 injury under a policy or contract under which the insurer does
2 not have the option to cancel or otherwise terminate the
3 contract at or after the expiration of one year from its
4 effective date.
5 § 4107. Investment of surplus.
6 The surplus of a beneficial society or a reincorporated
7 mutual beneficial society shall be invested in accordance with
8 the requirements of this title for the investment of the surplus
9 of life insurance companies.
10 § 4108. Annual statements.
11 (a) General rule.--Every beneficial society doing business
12 in this Commonwealth shall annually, on or before March 1, file
13 with the commissioner a statement which shall exhibit its
14 financial condition as of December 31 of the previous year and
15 its business of that year. The statement shall be in the form
16 prescribed, or on forms furnished, by the commissioner, and
17 shall contain such information as the commissioner deems best
18 adapted for the purpose of eliciting from the beneficial society
19 a true exhibit of its financial condition. Within 30 days after
20 being requested by the commissioner, the society shall render
21 such additional statements concerning its affairs and financial
22 condition as the commissioner requires.
23 (b) Penalties.--Any beneficial society which neglects to
24 make and file its annual statement in the form or within the
25 time required by this section shall forfeit a sum of not more
26 than $100 for each day during which its failure to file a
27 statement continues, and, upon notice from the commissioner, its
28 authority to transact new business shall cease while its default
29 continues. A beneficial society and the persons who make an oath
30 or subscribe to a false annual statement in its behalf shall
19850H1962B2642 - 396 -
1 severally be punished for willfully making a false annual
2 statement by a fine of not less than $500 or more than $5,000. A
3 person who makes oath to a false statement filed under
4 subsection (a) with the knowledge that it is false shall also be
5 subject to any applicable penalties under 18 Pa.C.S. Ch. 49
6 Subch. A (relating to perjury and falsification in official
7 matters).
8 § 4109. Examinations.
9 (a) Powers of commissioner.--The commissioner shall have the
10 power of visitation and examination into the affairs of every
11 beneficial society. He shall have free access to all the books,
12 papers and documents that relate to the business of the society,
13 and may summon and qualify as a witness under oath and examine
14 its officers and employees or other persons in relation to the
15 affairs, transactions and conditions of the society. These
16 examinations shall be made every three years or oftener as
17 necessary, and the costs of the examinations, as determined by
18 the commissioner, shall be imposed upon each society examined.
19 (b) Proceedings by Attorney General.--Whenever after
20 examination the commissioner finds that any beneficial society
21 is exceeding its powers, transacting business fraudulently,
22 operating in such a condition that its further transaction of
23 business will be hazardous to its members or to the public or
24 discontinuing business, the commissioner may present the facts
25 relating thereto to the Attorney General who may proceed against
26 the society under the provisions relating to the liquidation of
27 insolvent or delinquent companies or associations transacting
28 any class of insurance. Proceedings shall not be commenced by
29 the Attorney General until after notice has been duly served on
30 the chief executive officers of the society, and a reasonable
19850H1962B2642 - 397 -
1 opportunity given to it, on a date stated in the notice, to show
2 cause why such proceedings should not be commenced. An
3 application for injunction against or proceedings for the
4 dissolution of, or appointment of a receiver for, any beneficial
5 society or branch thereof, shall not be entertained by any court
6 unless made by the Attorney General.
7 § 4110. Filing and approval of documents.
8 A policy, contract or certificate of membership shall not be
9 issued or delivered by any beneficial society in this
10 Commonwealth, nor any application, rider or endorsement used in
11 connection therewith, until the forms of the same have been
12 submitted to and approved by the commissioner under such rules
13 and regulations as he shall make concerning their terms and
14 provisions and their submission to and approval by him.
15 § 4111. Qualifications of solicitors and agents.
16 Solicitors or agents for beneficial societies shall meet the
17 requirements of Subchapter A of Chapter 11 (relating to agents).
18 § 4112. Inclusion of certain documents in policy.
19 All beneficial certificates issued by any beneficial society
20 in which the application of the member, the constitution, bylaws
21 or other rules of the society form part of the certificate or
22 contract between the parties thereto, or have any bearing
23 thereon, shall contain or have attached thereto correct copies
24 of the application as signed by the applicant or the
25 constitution, bylaws or other rules referred to. Unless so
26 attached and accompanying the certificate or contract, the
27 application, constitution, bylaws or other rules shall not be
28 received in evidence in any controversy between the parties to
29 or interested in the certificate or contract, nor shall they be
30 considered a part of the certificate or contract between the
19850H1962B2642 - 398 -
1 parties.
2 § 4113. Criminal penalties.
3 Any person or beneficial society violating any of the
4 provisions of this chapter commits a misdemeanor of the third
5 degree.
6 § 4114. Civil penalties.
7 (a) General rule.--Upon satisfactory evidence of the
8 violation of this chapter by any beneficial society, the
9 commissioner may pursue any one or more of the following courses
10 of action:
11 (1) Suspend or revoke the certificate of authority of
12 the offending beneficial society.
13 (2) Refuse for a period of not to exceed one year
14 thereafter to issue a new certificate of authority to the
15 beneficial society.
16 (3) Impose a penalty of not more than $1,000 for each
17 violation.
18 (b) Procedure.--Before the commissioner takes any action
19 under subsection (a) he shall give written notice to the
20 beneficial society accused of violating the law, stating
21 specifically the nature of the alleged violation, and fixing a
22 time and place, at least ten days thereafter, when a hearing of
23 the matter shall be held. After the hearing or upon failure of a
24 duly authorized representative of the accused beneficial society
25 to appear at the hearing, the commissioner shall impose the
26 penalty.
27 § 4115. Transfer restrictions.
28 (a) General rule.--An unincorporated association which
29 provides mutual benefit insurance to persons engaged in a common
30 calling labor or enterprise, of an agricultural or industrial
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1 nature, may provide, by rule or bylaw, that membership in the
2 association or interest in its funds or property shall be
3 nontransferable without the consent of the association.
4 (b) Effect of transfer restriction.--Whenever such an
5 association adopts a restriction under subsection (a), the
6 restriction shall be valid and binding. An attempted assignment,
7 pledge or other transfer of membership or interest made in
8 violation of the restriction shall not pass any legal or
9 equitable right or interest to any person to whom it is
10 attempted to be made if the rule or bylaw is brought to the
11 knowledge of such attempted transferee. If the interest of a
12 member in the funds or property of such an association is
13 evidenced by a certificate, an endorsement thereon that the
14 certificate is nontransferable is conclusive evidence that the
15 attempted transferee of the certificate has knowledge of the
16 nontransferable character of the member's interest.
17 CHAPTER 43
18 FRATERNAL BENEFIT SOCIETY CODE OF 1972
19 Subchapter
20 A. Preliminary Provisions
21 B. Certification and General Regulation
22 C. Organization and Operation
23 D. Financial Matters
24 E. Conversion to Mutual Life Insurance Company
25 F. Foreign Societies
26 G. Crimes and Penalties
27 H. Regulation of Beneficial Societies
28 SUBCHAPTER A
29 PRELIMINARY PROVISIONS
30 Sec.
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1 4301. Short title and applicability of chapter.
2 4302. Definitions.
3 4303. Exemptions applicable to fraternal benefit societies.
4 § 4301. Short title and applicability of chapter.
5 (a) Short title of chapter.--This chapter shall be known and
6 may be cited as the Fraternal Benefit Society Code of 1972.
7 (b) Applicability of chapter.--This chapter shall apply to
8 every fraternal benefit society and to every person who violates
9 this chapter.
10 (c) Exceptions.--Notwithstanding subsection (b), this
11 chapter does not apply to:
12 (1) Grand or subordinate lodges of purely social or
13 labor organizations, nor to societies which limit their
14 membership to any one hazardous occupation, nor to domestic
15 societies which limit their membership to a particular
16 religion, nor to the employees of a particular municipal
17 corporation, firm or corporation, nor to domestic religious,
18 charitable or benevolent lodges, orders or associations,
19 which do not provide for a benefit of more than $300 to any
20 one person in any one year.
21 (2) Similar societies which do not issue benefit
22 certificates, or associations of local lodges of a society,
23 doing business in this Commonwealth on May 20, 1921, which
24 provide death benefits not to exceed $500 to any one person
25 or disability benefits not exceeding $300 in any one year to
26 any one person, or both, and contracts of reinsurance
27 business on such plan in this Commonwealth. However, in the
28 case of any society conducting any insurance branch and
29 issuing certificates and paying death benefits of more than
30 $500, the insurance branch of that society shall be subject
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1 to this chapter.
2 (3) Beneficial societies without ritualistic work or a
3 representative form of government, transacting any class of
4 insurance.
5 § 4302. Definitions.
6 The following words and phrases when used in this chapter
7 shall have the meanings given to them in this section unless the
8 context clearly indicates otherwise:
9 "Fraternal benefit society" or "society." Any corporation,
10 society, order or voluntary association, without capital stock,
11 organized and carried on solely for the mutual benefit of its
12 members and their beneficiaries, and not-for-profit, and having
13 a lodge system and representative form of government, or which
14 limits its membership to a secret fraternity having a lodge
15 system and representative form of government, and which shall
16 make provision for the payment of benefits in accordance with
17 section 4326 (relating to power to write insurance).
18 "Lodge." A constituent lodge, council, branch or other
19 subordinate unit of a society, by whatever name known.
20 "Lodge system." With respect to a society, having a supreme
21 governing or legislative body and subordinate lodges into which
22 members are admitted in accordance with its organic law and
23 providing for the holding of periodic meetings.
24 "Organic law." The articles of incorporation, bylaws,
25 constitution, laws, ritual, rules and regulations of a society.
26 "Representative form of government." With respect to any
27 society, providing in its organic law for a supreme legislative
28 or governing body composed of representatives elected either by
29 the members or by delegates elected, directly or indirectly, by
30 the members, together with such other members as prescribed by
19850H1962B2642 - 402 -
1 its organic law.
2 § 4303. Exemptions applicable to fraternal benefit societies.
3 (a) General insurance laws.--Except as otherwise provided in
4 this chapter, a fraternal benefit society holding a certificate
5 of authority under this chapter shall not be subject to the
6 statutes of this Commonwealth now in force relating to the
7 business of insurance and no statute hereafter enacted relating
8 to the business of insurance shall apply to such a society
9 unless the statute specifically refers and applies to such a
10 society.
11 (b) Tax laws.--Every society holding a certificate of
12 authority under this chapter is deemed a charitable and
13 benevolent institution, and all its income, funds, investments
14 and property shall be exempt from all taxation by the
15 Commonwealth or its political subdivisions, other than taxes on
16 real estate.
17 SUBCHAPTER B
18 CERTIFICATION AND GENERAL REGULATION
19 Sec.
20 4311. Preliminary certification.
21 4312. Organizational period.
22 4313. Permanent certificate of authority.
23 4314. Certain fundamental changes.
24 4315. Examination of societies.
25 4316. Restrictions on publication of examinations.
26 4317. Registration of principal office.
27 § 4311. Preliminary certification.
28 (a) General rule.--A corporation, fraternal benefit society,
29 order or voluntary association shall not solicit or collect any
30 payment on account of any death, disability or other benefit nor
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1 issue any benefit certificates nor pay or allow, or offer or
2 promise to pay or allow, to any person any death, disability or
3 any other benefit, until it receives from the commissioner a
4 preliminary certificate authorizing the society to solicit
5 members for beneficial purposes under this section.
6 (b) Form of application.--Every application for a
7 preliminary certificate under this section may be made only by a
8 nonprofit corporation as defined in Title 15 (relating to
9 corporations and unincorporated associations), shall be made to
10 the commissioner in writing and shall be in such form and
11 contain such information as the regulations of the commissioner
12 shall require, including:
13 (1) The name of the society, which shall not so closely
14 resemble the name of any society or insurance company already
15 doing business in this Commonwealth as to be misleading or
16 confusing.
17 (2) The purpose for which the society is incorporated,
18 which shall not include more liberal powers than are
19 permitted by this chapter. Any lawful social, intellectual,
20 educational, charitable, benevolent, moral or religious
21 advantages may be set forth among the purposes of the
22 society.
23 (3) The mode in which the corporate powers of the
24 society are to be exercised.
25 (4) The address, including street and number, if any, of
26 the principal office of the society in this Commonwealth.
27 (5) The names, residence and official titles of all the
28 officers, trustees, directors or other persons who are to
29 have and exercise the general control and management of the
30 affairs and funds of the society for the first year or to the
19850H1962B2642 - 404 -
1 ensuing election at which all such officers shall be elected
2 by the supreme legislative or governing body. This election
3 shall be held not later than one year from the date of the
4 issuance of the permanent certificate of authority.
5 (c) Additional documentation.--The application shall be
6 accompanied by certified copies of the organic law of and copies
7 of all proposed forms of benefit certificates, applications
8 therefor, and circulars to be issued by the society and a bond
9 in the sum of $5,000 with sureties approved by the commissioner,
10 conditioned upon the return to applicants of the advance
11 payments as provided in this subchapter, if the organization is
12 not complete within one year.
13 (d) Standards for issuance of preliminary certificate.--A
14 preliminary certificate shall be issued by order of the
15 commissioner if he finds and determines that the application
16 complies with this chapter and the regulations thereunder.
17 (e) Procedure.--For the purpose of enabling the commissioner
18 to make the finding or determination required by subsection (d),
19 the commissioner, by publication of notice in the Pennsylvania
20 Bulletin, shall afford reasonable opportunity for hearing, which
21 shall be public. Before or after the hearing, it may make such
22 inquiries, audits and investigations, and may require the
23 submission of such supplemental studies and information, as he
24 deems necessary or proper to enable him to reach a finding or
25 determination. The commissioner, in granting a certificate of
26 authority, may impose such conditions as he deems just and
27 reasonable. In every case the commissioner shall make a finding
28 or determination in writing, stating whether or not the
29 application has been approved, and, if it has been approved in
30 part only, specifying the part which has been approved and the
19850H1962B2642 - 405 -
1 part which has been denied. Any holder of a certificate of
2 authority exercising the authority conferred thereby shall be
3 deemed to have waived all objections to the terms and conditions
4 of the certificate.
5 (f) Judicial review.--Orders of the commissioner upon the
6 application for a preliminary certificate under this section
7 shall be subject to judicial review as provided by law.
8 § 4312. Organizational period.
9 (a) Solicitation permitted.--Upon receipt of the preliminary
10 certificate a society may solicit members for the purpose of
11 completing its organization. It shall collect from each
12 applicant the amount of not less than one regular monthly
13 payment in accordance with its table of rates, as provided by
14 its organic law, and shall issue to each applicant a receipt for
15 the amounts so collected.
16 (b) Duration of period.--A preliminary certificate shall not
17 be valid after one year from its date or after such further
18 period, not exceeding one year, as may be authorized by the
19 commissioner, upon cause shown.
20 § 4313. Permanent certificate of authority.
21 (a) General rule.--A corporation, fraternal benefit society,
22 order or voluntary association shall not incur any liability,
23 other than advance payments received by a holder of a
24 preliminary certificate pursuant to the certificate, nor issue
25 any benefit certificates nor pay or allow, or offer or promise
26 to pay or allow, to any person any death, disability or other
27 benefit, unless it receives from the commissioner a certificate
28 of authority authorizing the society to establish, maintain and
29 operate a benefit program under this chapter.
30 (b) Exemptions.--The provisions of subsection (a) do not
19850H1962B2642 - 406 -
1 apply to:
2 (1) Any society organized prior to April 6, 1893, under
3 any statute of this Commonwealth which was engaged in doing
4 business in this Commonwealth on that date. Any such society
5 may exercise all the rights conferred by this chapter and all
6 the rights, powers, privileges and exemptions now exercised
7 or possessed by it, under its charter or articles of
8 incorporation or articles of association, and neither its
9 existence as a corporation nor its right to exercise any
10 corporate rights vested in it by virtue of its past
11 incorporation are affected by this chapter. Any corporation
12 described in this paragraph is deemed to be a holder of a
13 certificate of authority issued under this section.
14 (2) Any society incorporated under the former provisions
15 of the act of April 6, 1893 (P.L.10, No.6), the act of May
16 20, 1921 (P.L.916, No.324) or the act of July 17, 1935
17 (P.L.1092, No.357), relating to fraternal benefit societies.
18 (c) Form of application.--Every application for a
19 certificate of authority under this section shall be made to the
20 commissioner in writing and shall be in such form and shall
21 contain such information as the regulations of the commissioner
22 shall require, including:
23 (1) Evidence that actual bona fide applications for
24 death benefit certificates have been secured upon at least
25 500 lives for at least $500 each.
26 (2) Evidence that there have been established five
27 subordinate lodges into which the 500 applicants have been
28 initiated.
29 (3) A list of the applicants, under oath of the
30 president and secretary or the corresponding officers of the
19850H1962B2642 - 407 -
1 society, giving the names, addresses, date initiated, name
2 and number of the lodge of which each applicant is a member,
3 amount of benefits to be granted, rate of stated periodic
4 contributions, which shall be sufficient to provide for
5 meeting the mortuary obligations contracted when valued for
6 death benefits upon the basis of the National Fraternal
7 Congress Table of Mortality, as adopted by the National
8 Fraternal Congress, August 23, 1899, or any higher standard,
9 at the option of the society, and for disability benefits by
10 tables based upon reliable experience, and for combined death
11 and permanent total disability benefits by tables based upon
12 reliable experience, with an interest assumption not higher
13 than 4% a year.
14 (4) The sworn statement of the treasurer, or the
15 corresponding officer of the society, to the effect that not
16 less than 500 applicants have each paid in cash at least one
17 regular monthly payment, as provided in this subchapter, per
18 $500 of benefits to be effected, which payments in the
19 aggregate shall amount to at least $500 and be credited to
20 the mortuary or disability fund on account of the applicants.
21 No part of such funds shall be used for expenses. These
22 advanced payments shall be held in trust during the period of
23 organization and, if the organization is not completed within
24 one year, or such further period as authorized by the
25 commissioner pursuant to this subchapter, shall be returned
26 to the applicants.
27 (d) Standards for issuance of certificate of authority.--A
28 certificate of authority shall be issued by order of the
29 commissioner only if he finds and determines that the
30 application complies with this chapter and the regulations
19850H1962B2642 - 408 -
1 thereunder.
2 (e) Procedure.--The proceedings before the department shall
3 be subject to the provisions of section 4311(e) (relating to
4 preliminary certification).
5 (f) Judicial review.--Orders of the commissioner upon an
6 application for a certificate of authority under this section
7 shall be subject to judicial review as provided by law.
8 § 4314. Certain fundamental changes.
9 (a) General rule.--A domestic fraternal benefit society
10 holding a certificate of authority under this chapter shall not
11 amend its articles of incorporation or merge, consolidate,
12 divide or reinsure with or accept the transfer of the membership
13 or funds of any other corporation, society, order or voluntary
14 association without first securing the approval of the
15 commissioner with respect thereto. This subsection does not
16 preclude any society from reinsuring all or part of any
17 individual risk with any other society or company.
18 (b) Form of application.--Every application for approval of
19 a fundamental change under this section shall be made to the
20 commissioner in writing and shall be in such form and shall
21 contain such information as the regulations of the commissioner
22 shall require.
23 (c) Standards for approval of fundamental changes.--The
24 amendment of articles, merger, consolidation, division,
25 reinsurance or transfer of or by the society shall be approved
26 by order of the commissioner only if he finds and determines
27 that the fundamental change conforms to law, including the
28 regulations under this chapter, and, except in the case of
29 reinsurance with a foreign society, will result in a society or
30 societies which, under this chapter and the regulations
19850H1962B2642 - 409 -
1 thereunder, would be eligible to receive a certificate of
2 authority as a fraternal benefit society.
3 (d) Procedure.--The proceedings before the department shall
4 be subject to the provisions of section 4311(e) (relating to
5 preliminary certification).
6 (e) Judicial review.--Orders of the commissioner upon an
7 application for approval under this section shall be subject to
8 judicial review as provided by law.
9 § 4315. Examination of societies.
10 (a) General rule.--Every domestic, foreign or alien
11 fraternal benefit society shall be subject to examination not
12 less frequently than once in every three years by the
13 commissioner who shall have free access to all the books,
14 records, papers and documents that relate to the business of the
15 society, and may examine the officers, agents, employees or
16 other persons, under oath, in relation to its affairs,
17 transactions and conditions. The examination shall be made at
18 such times as the department shall deem necessary. All expenses
19 incurred in connection with any examination under this section,
20 including compensation of the deputies, examiners and other
21 employees of the commissioner assisting in such an examination,
22 shall be charged to and paid by the society, at such times and
23 in such manner as shall be prescribed by regulation.
24 (b) Action against delinquent domestic societies.--Whenever
25 after examination the commissioner is satisfied that any
26 domestic society is exceeding its powers, is transacting
27 business fraudulently or is in such condition that its further
28 transaction of business will be hazardous to its members or to
29 the public or has determined to discontinue business, the
30 commissioner may present the facts relating thereto to the
19850H1962B2642 - 410 -
1 Attorney General. The Attorney General may proceed against the
2 society in the manner prescribed by this title providing for the
3 liquidation of insolvent or delinquent companies, or
4 associations transacting any class of insurance. The proceedings
5 shall not be commenced by the Attorney General against the
6 society until after notice has been served on the chief
7 executive officers of the society and a reasonable opportunity
8 given to it, on a date named in the notice, to show cause why
9 such proceedings should not be commenced. An application for
10 injunction against, or proceedings for the dissolution of or
11 appointment of a receiver for, any domestic society or lodge
12 thereof shall not be entertained by any court unless the
13 application is made by the Attorney General.
14 (c) Action against delinquent foreign or alien society.--If
15 any foreign or alien society or its officers refuse to submit to
16 the examination required by subsection (a) or to comply with
17 subsection (a) relative to the examination, the authority of the
18 society to write new business in this Commonwealth shall be
19 suspended or its license refused until satisfactory evidence is
20 furnished the commissioner relating to the condition and affairs
21 of the society.
22 § 4316. Restrictions on publication of examinations.
23 The commissioner shall not make public or permit to become
24 public any financial statement, report or finding affecting the
25 status, standing or rights of any society, until a copy thereof
26 is served upon the fraternal benefit society at its home office
27 and the society is afforded a reasonable opportunity to comment
28 on the material and to make such showing in connection therewith
29 as it may desire.
30 § 4317. Registration of principal office.
19850H1962B2642 - 411 -
1 A fraternal benefit society shall not change its registered
2 office in this Commonwealth to another location without first
3 giving the commissioner written notice of the change at least
4 ten days before the change will take effect.
5 SUBCHAPTER C
6 ORGANIZATION AND OPERATION
7 Sec.
8 4321. Restrictions on governmental structure.
9 4322. General powers of fraternal benefit societies.
10 4323. Collection of sufficient contributions.
11 4324. Waiver of organic law.
12 4325. Individual liability.
13 4326. Power to write insurance.
14 4327. Members and beneficiaries.
15 4328. Benefits upon lives of children.
16 4329. Beneficiary certificates.
17 4330. Liens against certificates.
18 4331. Attachment of benefits.
19 4332. Notice required for agreement with beneficiary.
20 4333. Beneficiary predeceasing a member.
21 4334. Disappearance of member.
22 4335. Exemption of societies paying accident benefits only.
23 § 4321. Restrictions on governmental structure.
24 (a) Supreme body.--The supreme legislative or governing body
25 of a fraternal benefit society shall satisfy the following
26 requirements:
27 (1) The elective members of the supreme or governing
28 body shall constitute a majority in number and not less than
29 the number of votes required to amend the organic law of the
30 society.
19850H1962B2642 - 412 -
1 (2) The meetings of the supreme or governing body and
2 the election of officers, representatives or delegates shall
3 be held as often as once in four calendar years, unless, due
4 to war emergency, the Federal Government has limited or
5 prohibited travel for meeting or convention purposes, in
6 which event, upon request by the society, the commissioner
7 may either waive the requirement that the meeting be held or
8 extend the time for holding the meeting.
9 (b) Participation by children.--A member under 16 years of
10 age shall not have any voice in the management of the society.
11 (c) Voting by proxy prohibited.--A member, officer,
12 representative or delegate shall not vote by proxy.
13 § 4322. General powers of fraternal benefit societies.
14 Every fraternal benefit society holding a certificate of
15 authority under this chapter may make and amend its organic law
16 for the government of the society, the management of its
17 affairs, the admission and classification of its members, the
18 control and regulation of the terms and conditions governing the
19 issue of its benefit certificates, and the character or kind of
20 benefits or privileges payable or allowable thereunder, the
21 fixing and adjustment of the rates of contribution, fees or dues
22 payable by its members, and the allotment of such receipts to
23 the different funds of the society. This organic law, when made
24 and as amended, shall be the law governing the society and its
25 officers, board of directors or managers, its subordinate or
26 constituent lodges and all members and beneficiaries in their
27 relation thereto. Each society shall file with the commissioner
28 a certified copy of its organic law as enacted and as amended,
29 within 90 days after enactment or amendment. Printed copies of
30 the organic law, certified by the secretary or corresponding
19850H1962B2642 - 413 -
1 officer of the society, shall be prima facie evidence of the
2 legal adoption thereof.
3 § 4323. Collection of sufficient contributions.
4 The organic law of every fraternal benefit society shall
5 provide that, if the stated periodic contributions of the
6 members are insufficient to pay all matured claims in full and
7 to provide for the payment of its benefit fund obligations,
8 valued upon a valuation by one of the standards authorized in
9 this chapter, and for the creation and maintenance of the funds
10 required by its organic law, additional or increased rates of
11 contribution shall be collected from the members to meet the
12 deficiency. The organic law may also provide that each
13 certificate shall be charged with its proportion of any
14 deficiency disclosed by the valuation specified in this chapter
15 with lawful interest thereon.
16 § 4324. Waiver of organic law.
17 Unless authorized by express provision in the organic law of
18 a fraternal benefit society, a subordinate lodge or any of its
19 subordinate officers or members may not, on behalf of the
20 society, waive or modify any of the provisions of the organic
21 law of the society or waive any violation, forfeiture or default
22 thereof.
23 § 4325. Individual liability.
24 An officer or member of any supreme, grand or subordinate
25 body of any fraternal benefit society shall not be individually
26 liable for the payment of any of the benefits provided for in
27 its organic law, but such benefits shall be payable only out of
28 the funds of the society and in the manner provided by its
29 organic law.
30 § 4326. Power to write insurance.
19850H1962B2642 - 414 -
1 (a) General rule.--Every fraternal benefit society holding a
2 certificate of authority under this chapter may provide in its
3 organic law for the payment of death benefits on the lives of
4 members or, upon application of a member, on the lives of the
5 spouse and minor children of a member in the same or separate
6 certificates, for the erection of monuments to mark the graves
7 of its deceased members, and, subject to this chapter, for the
8 grant of benefits of other kinds and character and for the
9 issuance of beneficiary certificates in evidence thereof.
10 (b) Required legend on forms.--This chapter does not prevent
11 a society from using terminology which expresses the intent and
12 purpose of the forms issued to its members, except that in the
13 contracts issued such forms shall include, in conspicuous type
14 on the masthead and on the filing back under the name of the
15 society, the words "A Fraternal Benefit Society."
16 § 4327. Members and beneficiaries.
17 (a) General rule.--Any person may be admitted to beneficial
18 or general or social membership in any fraternal benefit society
19 in such manner and upon such showing of eligibility as the
20 organic law of the society may provide. Any beneficial member
21 may direct any benefit to be paid to such person, entity or
22 interest as may be permitted by the organic law of the society.
23 A beneficiary shall not have or obtain any vested interest in
24 the benefit until the benefit has become due and payable in
25 conformity with the provisions of the contract of membership.
26 Every member shall have full right to change his beneficiary in
27 accordance with the organic law of the society.
28 (b) Minimum age for admission.--Any society may admit to
29 beneficial membership any person not less than 16 years of age.
30 Minors who have attained 16 years of age may make all necessary
19850H1962B2642 - 415 -
1 contracts and assume all necessary obligations to become
2 members. This chapter does not prevent any society from
3 accepting general or social members.
4 § 4328. Benefits upon lives of children.
5 (a) General rule.--Any fraternal benefit society holding a
6 certificate of authority under this chapter may provide in its
7 organic law, in addition to other benefits provided for therein,
8 for insurance or annuities, or both, upon the lives of children
9 at any age, upon the application of an adult person, as the
10 organic law of the society may provide. The society may organize
11 and operate branches for such children. Membership and
12 initiation in local lodges shall not be required of such
13 children, nor shall they have any voice in the management of the
14 society.
15 (b) Contributions.--The contributions to be made with
16 respect to benefits to be provided under subsection (a) shall be
17 based upon the "Standard Industrial Mortality Table," or the
18 "English Life Table Number Six," the "American Experience Table"
19 and Craig's Extension thereof, or such other mortality table as
20 may be approved by the commissioner, with an assumed rate of
21 interest not exceeding 4% a year.
22 (c) Reserve requirements.--Any society granting benefits
23 under this section shall maintain, with respect to all such
24 benefits, the reserve required by the standard of mortality and
25 interest adopted by the society for computing contributions as
26 provided in subsection (b).
27 (d) Powers.--Subject to this chapter, a society may provide
28 for means of enforcing payment of contributions, designation of
29 beneficiaries, and changing such designations and, in all other
30 respects, for the regulation, government and control of such
19850H1962B2642 - 416 -
1 benefits and all rights, obligations and liabilities incident
2 thereto.
3 § 4329. Beneficiary certificates.
4 (a) Certificates to specify amount and conditions.--Every
5 beneficiary certificate issued by a fraternal benefit society
6 shall specify the amount of benefits furnished thereunder and
7 shall provide that the beneficiary certificate, articles of
8 incorporation or, if a voluntary association, the articles of
9 the association, the other provisions of the organic law of the
10 society, the application for membership, and medical examination
11 or health certificate, signed by the applicant, and all
12 amendments to each thereof, shall constitute the agreement
13 between the society and the member. Copies of those papers
14 certified by the secretary of the society or corresponding
15 officer shall be received in evidence of the terms and
16 conditions thereof. Any amendments to the articles of
17 incorporation or articles of association, if a voluntary
18 association, and other provisions of the organic law, made or
19 enacted subsequent to the issuance of the beneficiary
20 certificates, shall bind the member and his beneficiaries and
21 shall control the agreement in force at the time of the
22 application for membership.
23 (b) Other benefits permitted.--Any society holding a
24 certificate of authority under this chapter may enter into
25 contracts in such other forms and granting such benefits as its
26 organic law authorizes, when it shall provide for the
27 accumulation and maintenance of assets required for the payment
28 of such benefits, when valued upon an interest basis not
29 exceeding 4% a year, and mortality standards adopted by it
30 within the limitations provided in this chapter or, at the
19850H1962B2642 - 417 -
1 option of the society, in the provisions of this title relating
2 to life insurance companies. Any certificates issued on a
3 renewable term basis shall set forth clearly thereon the
4 successive future rates of contribution to be paid thereunder.
5 (c) Approval of commissioner.--A society shall not issue,
6 sell or dispose of any certificate or contract providing
7 benefits to its membership in this Commonwealth, or use
8 applications, riders or endorsements in connection therewith,
9 until the forms thereof have been approved by the commissioner.
10 § 4330. Liens against certificates.
11 Any fraternal benefit society may provide for the acceptance
12 of liens against benefit certificates, with interest at not less
13 than 4% a year, in lieu of cash payments, but the total of such
14 liens against any benefit certificate shall not exceed its share
15 of the accumulation thereunder. Any society collecting a level
16 rate of contribution under any of its benefit certificates,
17 based upon any table of mortality allowed for valuation purposes
18 in this chapter, may grant to members holding the certificates
19 extended and paid up protection or such withdrawal equities as
20 may be allowed under its organic law. These grants or privileges
21 shall not exceed in value the portion of the accumulations to
22 the credit of the certificate at the time the grant or privilege
23 is allowed.
24 § 4331. Attachment of benefits.
25 Money or other benefit, charity, relief or aid to be rendered
26 by any fraternal benefit society shall not be liable to
27 attachment, garnishment or other process or to be applied by any
28 legal or equitable process or operation of law to pay any debt
29 or liability of a member or beneficiary or any other person who
30 may have a right thereunder, either before or after payment.
19850H1962B2642 - 418 -
1 § 4332. Notice required for agreement with beneficiary.
2 A contract between a member of a fraternal benefit society
3 and his beneficiary that the beneficiary or any person for him
4 shall pay the assessment and dues, or either of them, shall not
5 give the beneficiary a vested right in the benefit certificate
6 or in the benefits, or deprive the member of the right to change
7 the name of the beneficiary or revoke a certificate issued by
8 the society. A copy in writing of any contract between the
9 member and a beneficiary shall be delivered to the home office
10 of the society immediately; if the copy of the contract is not
11 so delivered and the society in good faith pays the named
12 beneficiary, the society shall be released from any further
13 liability.
14 § 4333. Beneficiary predeceasing a member.
15 If any beneficiary under a certificate dies before the
16 member, and no new designation is made by the member, and the
17 organic law of the fraternal benefit society makes no provision
18 for this contingency, the benefits under the certificate shall
19 be paid to the surviving beneficiary. If none of the
20 beneficiaries named in the certificate survives the member, the
21 benefits shall be paid to the personal representative of the
22 deceased member to be distributed to the persons entitled to the
23 personal estate of the member.
24 § 4334. Disappearance of member.
25 A proceeding in any court whereby a person is adjudged a
26 presumed decedent pursuant to statute shall not be binding upon
27 any fraternal benefit society, nor shall such a finding by any
28 court be offered in evidence as evidence of the death of the
29 presumed decedent in a later proceeding against the society,
30 unless 30 days' notice of the proceeding, including notice of
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1 the time and place of any hearing, is given to the home office
2 of the society and opportunity is given to the society to appear
3 in the proceeding as intervenor.
4 § 4335. Exemption of societies paying accident benefits only.
5 Any fraternal benefit society organized and incorporated
6 prior to May 20, 1921, which provides for benefits in case of
7 death or disability resulting solely from accidents, but which
8 does not obligate itself to pay death or sick benefits
9 generally, shall be exempt from the provisions of this chapter
10 requiring valuation of benefit fund obligations and requiring
11 the certificate to specify the amount of benefit.
12 SUBCHAPTER D
13 FINANCIAL MATTERS
14 Sec.
15 4341. Funds and investments.
16 4342. Annual statement.
17 4343. Valuation report.
18 4344. Accumulation and tabular bases of valuation.
19 4345. Valuation of noncancelable health and accident
20 benefits.
21 § 4341. Funds and investments.
22 (a) General rule.--Any fraternal benefit society may create,
23 maintain, invest, disburse and apply emergency, surplus or other
24 funds, consistent with the purposes for which the society is
25 organized, including hospital and health, home, thrift, employee
26 pension, patriotic, educational and relief or other funds, in
27 accordance with its organic law. Unless otherwise provided in
28 the organic law, the funds shall be held, invested and disbursed
29 for the use and benefit of the society, and no member or
30 beneficiary shall have or acquire individual rights therein or
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1 become entitled to any apportionment or the surrender of any
2 part thereof. All domestic societies issued a certificate of
3 authority or foreign societies admitted shall be completely
4 solvent, according to the valuation requirements of this
5 subchapter.
6 (b) Beneficial reserves.--The funds from which benefits
7 shall be paid and the funds from which expenses of the society
8 shall be defrayed shall be derived from regular monthly or other
9 periodic rates of contribution, received by the society, and
10 accretions of the funds as apportioned in accordance with the
11 organic law of the society. Funds set aside for the payment of
12 benefits shall not be used for expenses or other purposes,
13 except that any society having admitted assets, as shown by its
14 last annual statement filed with the commissioner, in excess of
15 its total liabilities, including its required reserves computed
16 on a net tabular basis, may transfer or allocate the excess
17 insurance funds to the expense or other funds of the society, in
18 accordance with its organic law.
19 (c) Consolidation of funds.--Any society having admitted
20 assets, as shown by its last annual statement filed with the
21 commissioner, in excess of its total liabilities, including its
22 required reserves computed on a net tabular basis, not lower
23 than the American Experience Table of Mortality, with an
24 interest rate of 3.5%, may, in accordance with its organic law,
25 provide for the consolidation of its various funds and may
26 report its transactions accordingly if no expenses will be
27 incurred that would impair the reserve base which it is using.
28 (d) Permitted investments.--Except as otherwise authorized
29 by this section, every domestic society shall invest its funds
30 only in securities and in the manner permitted by this title for
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1 the investment of the funds of life insurance companies and in
2 securities of Federal savings and loan associations or of other
3 institutions to the extent that such investment is guaranteed by
4 the Federal Government. Unless the approval of the commissioner
5 is first obtained in writing, a domestic society shall not keep
6 or maintain, at a place outside this Commonwealth, any
7 securities or other assets, except those necessary for the
8 collection of current dues and for enabling it to comply with
9 the law of any other jurisdiction for the purpose of doing
10 business therein.
11 § 4342. Annual statement.
12 Every fraternal benefit society shall, on or before March 1
13 of each year, file with the commissioner, in such form as he may
14 require, a statement, verified by its president and secretary,
15 or corresponding officers, of its transactions for the preceding
16 calendar year, and of its condition and standing at the end of
17 the year, and shall include therein all accrued liability under
18 unpaid claims. It shall also, within 30 days after requested by
19 the commissioner, render such additional statement or statements
20 concerning its affairs and financial conditions as the
21 commissioner may require.
22 § 4343. Valuation report.
23 (a) General rule.--In addition to the annual statement
24 required under section 4342 (relating to annual statement), each
25 fraternal benefit society shall, on or before April 1 of each
26 year, report to the commissioner a valuation of its benefit fund
27 obligations in force at the end of the preceding calendar year.
28 The report of valuation shall show as contingent liabilities the
29 present midyear value of the promised benefits provided in the
30 organic law of the society under certificates then subject to
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1 valuation, at not more than 4% interest, less such portion
2 thereof as has been assumed by other associations or companies,
3 and as contingent assets the present midyear value, at the same
4 rate of interest, of such future net contributions provided in
5 the organic law of the society as are actually collected.
6 (b) Alternate rule.--In lieu of the valuation provided for
7 in subsection (a), any society may show the net value of its
8 benefit fund obligations subject to valuation at not more than
9 4% interest. The net value, when computed in the case of monthly
10 contributions, may be the mean of the terminal value for the end
11 of the preceding and of the current certificate years, from
12 which tabular values shall be deducted the portion thereof
13 assumed by other associations or companies.
14 (c) Certification.--Each valuation report shall be certified
15 by a competent accountant or actuary or, at the request and
16 expense of the society, verified by the actuary of the
17 department of insurance of the jurisdiction of incorporation of
18 the society. Every valuation report shall set forth clearly and
19 fully the mortality and interest basis and the method of
20 valuation.
21 (d) Pre-1952 standard.--The minimum standard of valuation
22 for death benefit fund obligations issued prior to January 1,
23 1952, shall be the National Fraternal Congress Table of
24 Mortality or, at the option of the society, any other standard
25 table or a table based upon the experience of the society over
26 at least 20 years and covering not less than 100,000 lives, with
27 an interest assumption of not more than 4%.
28 (e) Post-1951 standard.--The minimum standard of valuation
29 for death benefit fund obligations issued on and after January
30 1, 1952, shall be the American Experience Table of Mortality,
19850H1962B2642 - 423 -
1 with an interest assumption of not more than 3.5%.
2 (f) Disability benefits.--Any society providing for
3 cancelable disability benefits shall keep a separate account of
4 such benefits in its valuation report, and shall establish and
5 maintain a reserve of one-half of the periodic contribution for
6 such benefits. On and after January 1, 1952, the minimum basis
7 for contributions and reserves for disability benefits and
8 double indemnity benefits shall be the minimum basis required of
9 legal reserve life insurance companies for such benefits.
10 (g) Existing nonforfeiture benefits.--This section does not
11 require a society which has adopted a procedure for
12 strengthening its reserve to modify any existing nonforfeiture
13 benefits.
14 (h) Publication of valuation report.--A report of the
15 valuation, with such explanations as the society believes
16 advisable, shall be printed and mailed to each beneficial member
17 of the society not later than July 1 of each year, or may
18 instead be published in the official paper of the society, if
19 the issue containing the report is mailed to each beneficial
20 member of the society.
21 § 4344. Accumulation and tabular bases of valuation.
22 (a) General rule.--In lieu of the valuation required by
23 section 4343 (relating to valuation report), any fraternal
24 benefit society may value its certificates on a basis,
25 designated in this section as the "accumulation basis," by
26 crediting each member with the net amount contributed for each
27 year and with interest, at approximately the net rate earned,
28 and by charging him with his share of the losses for each year,
29 designated in this section as the "cost of insurance," and
30 carrying the balance, if any, to his credit. The charge for the
19850H1962B2642 - 424 -
1 cost of insurance may be according to the actual experience of
2 the society, as applied to a table of mortality recognized by
3 this title, and shall take into consideration the amount at risk
4 during each year, which shall be the amount payable at death,
5 less the credit to the member.
6 (b) Initial valuation.--Unless specifically provided in the
7 organic law of the society, a charge shall not be carried
8 forward from the first valuation under this section against any
9 member, for any past share of losses exceeding the contributions
10 and credit. If after the first valuation the share of losses of
11 any member for any year exceeds his credit, including the
12 contributions for the year, the contributions shall be increased
13 to cover his share of the losses. Any such excess share of
14 losses chargeable to any member may be paid out of a fund or
15 contributions especially created or required for this purpose.
16 (c) Tabular basis.--Any member may transfer to any plan
17 adopted by the society, with net rates on which tabular reserves
18 are maintained, and, upon the transfer, may take such
19 application to his credit as provided in the organic law of the
20 society. Certificates issued, rerated or readjusted on a basis
21 providing for adequate rates, with adequate reserves to mature
22 the certificates upon assumption for mortality and interest,
23 recognized by this title, shall be valued on such basis,
24 designated in this section as the "tabular basis." If on the
25 first valuation under this section a deficiency in reserve shall
26 be shown for the certificate, the certificate shall be valued on
27 the accumulation basis.
28 (d) Accumulation and tabular bases.--Whenever, in any
29 society having members upon the tabular basis and upon the
30 accumulation basis, the total of all costs of insurance provided
19850H1962B2642 - 425 -
1 for any year is insufficient to meet the actual death and
2 disability losses for the year, the deficiency may be met for
3 the year from the available funds, after setting aside all
4 credits in the reserve, or from increased contributions or by an
5 increase in the number of assessments, applied in the society as
6 a whole or to classes of members as specified in its organic
7 law. Savings from a lower amount of death losses may be returned
8 in a similar manner as specified by its organic law.
9 (e) Segregation of assets.--If the organic law of the
10 society so provides, the assets representing the reserves of any
11 separate class of members may be carried separately for the
12 class, and the required reserve accumulation of the class shall
13 not thereafter be merged with the assets of other classes of the
14 society without the approval of the commissioner.
15 (f) Table required.--A table, showing the credits to
16 individual members for each year and age of entry and showing
17 opposite these credits the tabular reserve required in the whole
18 life or other plan of insurance specified in the contract,
19 according to assumptions for mortality and interest recognized
20 under this title and adopted by the society, shall be filed by
21 the society with each annual statement and shall be furnished to
22 each member before July 1 of each year.
23 (g) Statement in lieu of table.--In lieu of the statement
24 required by subsection (f), there may be furnished to each
25 member before July 1 of each year a statement giving the credit
26 for the member and giving the tabular reserve and level rate
27 required for the transfer carrying out the plan of insurance
28 specified in the contract. A table or statement need not be made
29 or furnished where the reserves are maintained on the tabular
30 basis. For this purpose individual bookkeeping accounts for each
19850H1962B2642 - 426 -
1 member shall not be required, and all calculations may be made
2 by actuarial methods.
3 (h) No individual interest in reserves.--This section does
4 not prohibit the maintenance of such surplus over and above the
5 credits on the accumulation basis and the reserves on the
6 tabular basis as any society may provide under its organic law,
7 or give any member any right or claim to any such reserve or
8 credit, other than as provided in its organic law.
9 (i) Elimination of reserve deficiency.--If the valuation of
10 the certificates under this section shows that the present value
11 of future net contributions, together with the admitted assets,
12 is less than the present value of the promised benefits and
13 accrued liabilities, the society shall either collect additional
14 assessments or increase the rates of contribution from the
15 members to meet the deficiency or classify its members according
16 to the adequacy of the rates they are contributing and charge
17 each class with its proportion of any deficiency disclosed by
18 the valuation.
19 § 4345. Valuation of noncancelable health and accident
20 benefits.
21 (a) General rule.--The commissioner shall each year value or
22 require every fraternal benefit society to value the reserve
23 liabilities, as of the end of the preceding calendar year, of
24 the society with respect to all of its noncancelable health and
25 accident benefits issued on and after January 1, 1950.
26 (b) Standards.--The legal minimum standard for computing the
27 active life reserve, including the unearned premium reserve of
28 the noncancelable health and accident certificates issued on and
29 after January 1, 1950, shall be based on the Disabled Life
30 Conference Modification of Class III Disability Table, with
19850H1962B2642 - 427 -
1 interest not to exceed 3.5% on the full preliminary term basis.
2 The reserve under such certificates shall also be based on that
3 table, except that for claims of less than 27 months' duration,
4 the reserve may be taken as equivalent to the prospective claim
5 payment, in the case of short term contracts, or to 3 1/2 times
6 the elapsed period of disability, in the case of unlimited
7 contracts. In the case of unlimited contracts, the reserve shall
8 not be less than the equivalent of seven weeks' claim payments.
9 (c) Modification of standards.--The commissioner may modify
10 the application of the requirements of this section to
11 certificates or to claims arising under certificates in
12 accordance with the waiting period contained in the certificates
13 and in accordance with any limitation as to the time for which
14 indemnity is payable, or in such other manner as is warranted.
15 The commissioner may, whenever deemed prudent for the protection
16 of certificate holders in this Commonwealth, vary the standard
17 in particular cases.
18 (d) Foreign or alien societies.--The commissioner may, with
19 respect to any foreign or alien society, accept a life valuation
20 of the insurance supervising official of the jurisdiction in
21 which the society is incorporated or domiciled, if the valuation
22 is made upon a basis and according to standards producing an
23 aggregate reserve not less than as required under this section.
24 (e) Treatment of subordinate lodges.--This section does not
25 apply to the subordinate lodges of societies, as such, in cases
26 where the subordinate lodges provide for health and accident
27 benefits independent of the supreme body.
28 (f) Definition.--As used in this section the term
29 "noncancelable health and accident benefits" means benefits
30 against disability resulting from a natural condition or bodily
19850H1962B2642 - 428 -
1 injury, under a certificate under which the society does not
2 have the option to cancel or otherwise terminate the certificate
3 at or after the expiration of one year from its effective date.
4 SUBCHAPTER E
5 CONVERSION TO MUTUAL LIFE INSURANCE COMPANY
6 Sec.
7 4351. Power to effect conversion.
8 4352. Proceedings before commissioner.
9 4353. Organization of company.
10 4354. Rights and liabilities of converted societies.
11 § 4351. Power to effect conversion.
12 Any domestic fraternal benefit society, which has outstanding
13 death benefit certificates or certificates of life insurance in
14 an amount of more than $1,000,000 issued to not less than 400
15 members, which has a surplus of more than $200,000, which is
16 subject to supervision by the commissioner, and which does not
17 operate an orphanage, sanatorium, hospital, home for the aged or
18 similar institution, may convert itself into a mutual life
19 insurance company in the manner provided, and subject to the
20 provisions, in this subchapter.
21 § 4352. Proceedings before commissioner.
22 (a) Proposal of plan.--The board of directors of the
23 domestic fraternal benefit society shall, by resolution, adopt a
24 plan of conversion providing for the conversion of the society
25 into a mutual life insurance company.
26 (b) Transmission of plan to members.--A copy of the plan
27 shall be sent by mail to every member of the society, together
28 with a form on which the member may express his dissent from the
29 plan and a notice that unless the dissent of the member is
30 received at the home office of the society within 30 days from
19850H1962B2642 - 429 -
1 the date of the notice, the assent of the member will be
2 presumed. The notice and form shall be mailed in an envelope
3 bearing the return address of the society and a direction that
4 it be returned to the society if undelivered to the addressee
5 within ten days of the date of mailing. Undelivered notices
6 shall be counted as dissents.
7 (c) Adoption by members.--Unless a majority of the members
8 dissent within the 30-day period, the society may file with the
9 commissioner the plan and articles of incorporation as a mutual
10 life insurance company, which shall be in duplicate and shall
11 meet the requirements for the incorporation of mutual life
12 insurance companies incorporated under Chapter 33 (relating to
13 incorporation of insurance companies), except that the death
14 benefit certificates or certificates of life insurance in force
15 and the surplus shall be in lieu of the applications for
16 insurance and the guarantee fund required in the case of
17 incorporation under that statute. The articles of incorporation
18 shall be signed by a majority of the directors of the society.
19 (d) Standards for approval of conversion.--The plan and
20 articles shall be approved by order of the commissioner only if
21 the commissioner finds and determines that they comply with this
22 subchapter and that the society is financially qualified to be a
23 mutual life insurance company as in other cases.
24 (e) Procedure before departments.--The proceedings before
25 the department shall be subject to the provisions of section
26 4311(e) (relating to preliminary certification). If the
27 commissioner approves the plan and articles, it shall deliver
28 the plan and articles with its written approval to the
29 Department of State. If all the taxes, fees and charges required
30 by law have been paid and if the name of the proposed company
19850H1962B2642 - 430 -
1 continues to be reserved or is available on the records of the
2 Department of State, the receipt of the plan and articles by the
3 Department of State with the written approval of the
4 commissioner shall constitute filing of the plan and articles in
5 the Department of State as of the date and time of receipt or as
6 of any later date and time specified by the commissioner. The
7 Department of State shall immediately make and retain a copy of
8 the plan and articles and return the original plan and articles
9 to the society. The filing of the articles in the Department of
10 State shall have the same effect as the filing of approved
11 articles of association for a mutual life insurance company
12 under this title, the issuance by the Governor of letters patent
13 and the recording of the articles and letters patent in the
14 proper office for the recording of deeds.
15 (f) Judicial review.--Orders of the commissioner upon the
16 question of the approval of the plan and articles shall be
17 subject to judicial review as provided by law.
18 § 4353. Organization of company.
19 (a) General rule.--Upon the filing of the plan and articles
20 in the Department of State, the fraternal benefit society shall
21 be converted into a mutual life insurance company and shall
22 continue to be vested with all of its assets, subject to the
23 payment of all of its liabilities, including pro rata refunds of
24 contributions or dues on any certificates which it no longer has
25 the right to issue. The company, in the name of the society,
26 shall advertise the fact of the conversion one time in a
27 newspaper of general circulation in the county in which it
28 maintained its principal or registered office and in the capital
29 of any other jurisdiction in which it was authorized to do
30 business. This advertisement shall include a statement that any
19850H1962B2642 - 431 -
1 dissenting certificate holder who desires to cancel his
2 certificate may do so by delivering it on or before a specified
3 date, which shall not be later than six months after the date of
4 the filing of the articles of incorporation in the Department of
5 State, to the company and receive the pro rata unearned dues or
6 contributions for the certificate and the nonforfeiture value of
7 the certificate. A copy of this advertisement shall be mailed at
8 the same time by the company to each dissenting certificate
9 holder at his address upon the records of the society.
10 (b) Initial examination.--The company shall satisfy the
11 commissioner, after examination, that it has paid all amounts
12 due to any dissenting certificate holders and all liabilities on
13 certificates which it is required to cancel.
14 § 4354. Rights and liabilities of converted societies.
15 Mutual life insurance companies converted under this
16 subchapter shall have all the rights and privileges and shall be
17 subject to all the requirements of mutual life insurance
18 companies incorporated under Chapter 33 (relating to
19 incorporation of insurance companies) but shall have no rights
20 or privileges beyond those applicable to other domestic mutual
21 life insurance companies.
22 SUBCHAPTER F
23 FOREIGN SOCIETIES
24 Sec.
25 4361. Licensure of authorized societies.
26 4362. Application for admission to do business.
27 4363. Admission of certain societies.
28 4364. Acceptance of foreign examinations.
29 4365. Revocation of authority.
30 4366. Procedure before commissioner.
19850H1962B2642 - 432 -
1 § 4361. Licensure of authorized societies.
2 Each authorized foreign or alien fraternal benefit society
3 authorized shall apply to the commissioner for the renewal of
4 its license by April 1 of each year. Every license for which a
5 timely application for renewal has been made shall continue in
6 effect until a new license is issued or specifically refused. A
7 duly certified copy or duplicate of the license shall be prima
8 facie evidence that the licensee is a society within the meaning
9 of this chapter, and that it may invest its assets as required
10 by the law of the jurisdiction where it is organized. Upon
11 compliance with the provisions of this chapter applicable to
12 foreign or alien societies, the license shall be renewed.
13 § 4362. Application for admission to do business.
14 (a) Procedure.--A foreign fraternal benefit society shall
15 not do any business in this Commonwealth without a license from
16 the commissioner. The society may be licensed upon filing the
17 following with the commissioner:
18 (1) A duly certified copy of its charter or articles of
19 association.
20 (2) A copy of the other provisions of its organic law
21 certified by its secretary or corresponding officer.
22 (3) A copy of the application for a certificate of
23 authority filed in the Department of State pursuant to 15
24 Pa.C.S. § 8124 (relating to application for a certificate of
25 authority) and the certificate of authority issued thereon.
26 (4) A statement of its business verified by its
27 president and secretary, or corresponding officers, in the
28 form required by the commissioner, and duly confirmed by an
29 examination made by the supervising insurance official of its
30 domiciliary jurisdiction or another jurisdiction satisfactory
19850H1962B2642 - 433 -
1 to the commissioner.
2 (5) A certificate from the proper official in its
3 domiciliary jurisdiction that the society is legally
4 incorporated or organized.
5 (6) A copy of its certificate of membership, stating
6 that benefits are provided for by periodical or other
7 payments by persons holding similar certificates.
8 (7) A valuation report of its benefit fund obligations
9 in force at the end of the preceding calendar year, in the
10 manner required by Subchapter D (relating to financial
11 matters).
12 (8) Such other information as the commissioner may deem
13 necessary to properly disclose the business and mode of
14 operation of the applicant.
15 (b) Standards.--Every foreign society desiring admission to
16 this Commonwealth shall have the qualifications required of
17 domestic societies and have its benefit fund obligations valued
18 upon a valuation by any one of the standards authorized in
19 Subchapter D and shall have its assets invested as required by
20 the law of the jurisdiction in which it is incorporated or
21 organized.
22 (c) Existing contracts.--This section and section 4361
23 (relating to licensure of authorized societies) do not prevent
24 any unlicensed foreign society from continuing in good faith all
25 contracts made in this Commonwealth during the time the society
26 was authorized to do business therein.
27 § 4363. Admission of certain societies.
28 Any fraternal benefit society organized prior to May 20,
29 1921, and operating in this Commonwealth prior to that date
30 which limits its membership to the members of one or more
19850H1962B2642 - 434 -
1 fraternal orders, which members are required to have been
2 proposed, elected by ballot, initiated and obligated through
3 subordinate lodges, under prescribed ritualistic ceremonies,
4 shall be regarded as complying with the requirements of this
5 chapter as to subordinate lodges and the admission of members
6 therein and shall, upon compliance with all other provisions of
7 this chapter, be deemed a fraternal benefit society operating on
8 the lodge system and entitled to a license under this chapter.
9 § 4364. Acceptance of foreign examinations.
10 The commissioner may, in lieu of the examination otherwise
11 required by section 4315 (relating to examination of societies),
12 accept the examination of the regulatory authority of the
13 domicile of the foreign fraternal benefit society.
14 § 4365. Revocation of authority.
15 When the commissioner on investigation is satisfied that any
16 foreign fraternal benefit society doing business under this
17 chapter has exceeded its powers or has failed to comply with any
18 provision of this chapter or is conducting business
19 fraudulently, the commissioner may revoke the authority of the
20 society to do business in this Commonwealth.
21 § 4366. Procedure before commissioner.
22 (a) General rule.--Before the commissioner refuses to
23 license any foreign fraternal benefit society or revokes or
24 suspends its authority to do business in this Commonwealth, it
25 shall furnish to the society a statement of its reasons for the
26 proposed refusal, revocation or suspension and give notice of a
27 time and place of hearing, at which the society may show cause
28 why a license should be granted to it or why the license granted
29 to it should not be revoked or suspended, as the case may be.
30 (b) Discovery.--Upon request made to the commissioner by
19850H1962B2642 - 435 -
1 such foreign society, the commissioner shall issue subpoenas to
2 summon such witnesses as the society may desire. Upon the filing
3 of a verified petition by the society showing that the testimony
4 of the persons named therein is competent and relevant to the
5 issues to be heard by the commissioner and that the persons are
6 outside this Commonwealth, the department shall appoint a person
7 qualified by law to administer oaths, to take the testimony of
8 the persons at the places specified in the petition where the
9 testimony may be obtained. The testimony shall be taken upon
10 oral examination and cross examination or upon written
11 interrogatories and cross interrogatories, as the commissioner
12 determines, and when so taken shall be reduced to writing and
13 certified to the commissioner by the person appointed to take
14 the testimony and shall be made a part of the record of the
15 hearing. The cost of issuing the subpoenas shall be paid to the
16 commissioner by the society.
17 (c) Notice.--Any notice of hearing required by this chapter
18 with respect to a foreign society shall be sufficient as to
19 delivery if sent by registered mail, addressed to the society or
20 to its president at its principal office in its domiciliary
21 jurisdiction.
22 (d) Record.--A complete record shall be kept of the hearing.
23 All testimony taken at the hearings shall be reported
24 stenographically, and the completeness and accuracy of the
25 record shall be certified by the commissioner.
26 (e) Written decision.--All decisions, rulings and findings
27 of the commissioner made under this chapter with respect to a
28 foreign society, together with a statement of its reasons
29 therefor, shall be made in writing and filed with the
30 commissioner, who shall serve a copy thereof upon the society by
19850H1962B2642 - 436 -
1 registered mail addressed to the society or its president at its
2 principal office in its domiciliary jurisdiction.
3 (f) Judicial review.--Orders of the department upon an
4 application for a license by any foreign fraternal benefit
5 society or in any proceeding relating to the suspension or
6 revocation of its authority to do business in this Commonwealth
7 shall be subject to judicial review as provided by law.
8 SUBCHAPTER G
9 CRIMES AND PENALTIES
10 Sec.
11 4371. Issuing unapproved contracts or certificates.
12 4372. Failure to file annual statements.
13 4373. Misrepresentations.
14 4374. Soliciting memberships in unlicensed society.
15 4375. Other violations of chapter.
16 § 4371. Issuing unapproved contracts or certificates.
17 (a) Criminal penalty.--Any person who either as principal or
18 agent issues or causes to be issued any contract or certificate
19 of insurance, application, rider, endorsement or similar
20 document in this Commonwealth contrary to section 4329(c)
21 (relating to beneficiary certificates) commits a misdemeanor of
22 the third degree.
23 (b) Administrative penalty.--Upon satisfactory evidence of a
24 violation described in subsection (a), the commissioner may
25 pursue any one or more of the following courses of action:
26 (1) Suspend or revoke the license of the offending
27 person.
28 (2) Refuse for a period, not to exceed one year, to
29 issue a new license to the person.
30 (3) Impose a civil penalty of not more than $2,000 for
19850H1962B2642 - 437 -
1 each act in violation of this section, to be recovered by an
2 action of assumpsit instituted in the name of the
3 Commonwealth.
4 When the commissioner takes action under paragraph (1) or (2),
5 the final order of the commissioner shall be subject to judicial
6 review as provided by law.
7 § 4372. Failure to file annual statements.
8 Any fraternal benefit society which fails to file its annual
9 statement or other required statements in the form or within the
10 time provided under this chapter shall pay a sum determined by
11 the commissioner, not to exceed $250, for each day during which
12 this default continues, and, upon notice by the commissioner,
13 the authority of the society to do new business shall be
14 suspended while the default continues.
15 § 4373. Misrepresentations.
16 (a) Defrauding society.--Any officer, member or examining
17 physician of any fraternal benefit society or other person who
18 knowingly or willfully makes any false or fraudulent statement
19 or representation in or with the reference to any application
20 for membership, or for the purpose of obtaining money from or
21 benefit in any society, commits a misdemeanor of the third
22 degree.
23 (b) Interfering with business relationships.--Any person who
24 publishes or communicates or causes to be published or
25 communicated any false statement or rumor concerning any society
26 for the purpose of inducing any member to cancel his certificate
27 therein or withdraw therefrom or with the intent to lessen the
28 value of any such certificate, commits a misdemeanor of the
29 third degree.
30 § 4374. Soliciting memberships in unlicensed society.
19850H1962B2642 - 438 -
1 Any person who solicits membership for, or in any manner
2 assists in procuring membership in any fraternal benefit society
3 not authorized to do business in this Commonwealth, commits a
4 misdemeanor of the third degree. Any society which violates the
5 provisions of this section shall be denied by the commissioner a
6 license or right to do business in this Commonwealth.
7 § 4375. Other violations of chapter.
8 Any fraternal benefit society or other association or any
9 officer, agent or employee of a society or association or any
10 other person neglecting or refusing to comply with or violating
11 any of the provisions of this chapter, the penalty for which
12 refusal or violation is not specified, commits a misdemeanor of
13 the third degree.
14 SUBCHAPTER H
15 REGULATION OF BENEFICIAL SOCIETIES
16 Sec.
17 4381. General regulation.
18 § 4381. General regulation.
19 All beneficial societies or associations not subject to
20 regulation under this chapter, transacting any class of
21 insurance, shall file with the commissioner copies of their
22 charter, constitution and laws and shall annually make a report
23 in such form as the commissioner requires, showing their
24 condition and standing at the end of the preceding calendar
25 year, and their transactions for that year. The commissioner may
26 at any time make an examination of the books and accounts of any
27 such society or association.
28 CHAPTER 45
29 FRATERNAL BENEFIT SOCIETY CODE OF 1977
30 Subchapter
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1 A. General Provisions
2 B. Organization and Corporate Operations
3 C. Benefits and Beneficiaries
4 D. Certificates
5 E. Accident, Health and Disability Insurance Contracts
6 F. Licensure
7 G. Regulation of Operations
8 SUBCHAPTER A
9 GENERAL PROVISIONS
10 Sec.
11 4501. Short title of chapter.
12 4502. Definitions.
13 4503. Exemption from general insurance law.
14 4504. Taxation.
15 4505. Applicability of chapter.
16 § 4501. Short title of chapter.
17 This chapter shall be known and may be cited as the Fraternal
18 Benefit Society Code of 1977.
19 § 4502. Definitions.
20 The following words and phrases when used in this chapter
21 shall have the meanings given to them in this section unless the
22 context clearly indicates otherwise:
23 "Fraternal benefit society" or "society." Any incorporated
24 society, order or lodge, without capital stock, including one
25 exempted under section 4505(a)(2) (relating to applicability of
26 chapter), whether incorporated or not, conducted solely for the
27 benefit of its members and their beneficiaries and not for
28 profit, operated on a lodge system with or without ritualistic
29 form of work, having a representative form of government and
30 which makes provision for the payment of benefits in accordance
19850H1962B2642 - 440 -
1 with this chapter.
2 "Lodge system." With respect to a society having a supreme
3 legislative or governing body and subordinate lodges or branches
4 by whatever name known, into which members are elected,
5 initiated or admitted in accordance with its constitution,
6 bylaws, rituals or rules, which subordinate lodges or branches
7 are required by the bylaws of the society to hold regular
8 meetings at least once in each quarter.
9 "Premium." Any charges, fees, dues or other required
10 contributions by whatever name known.
11 "Representative form of government." With respect to a
12 society, a form of its governance which meets the following
13 standards:
14 (1) The constitution or bylaws provide for a supreme
15 legislative or governing body, composed of representatives
16 elected either by the members or by delegates elected
17 directly or indirectly by the members, together with such
18 other members of the body as are prescribed by the society's
19 constitution and bylaws.
20 (2) The representatives elected constitute a majority in
21 number and have not less than two-thirds of the votes nor
22 less than the votes required to amend its constitution and
23 bylaws.
24 (3) The meetings of the supreme legislative or governing
25 body and the election of officers, representatives or
26 delegates are held at least once every four calendar years.
27 (4) Each benefit member is eligible for election to
28 serve as a delegate to these meetings.
29 (5) The society has a board of directors charged with
30 the responsibility for managing its affairs in the interim
19850H1962B2642 - 441 -
1 between meetings of its supreme legislative or governing
2 body, subject to control by that body and having powers and
3 duties delegated to it in the constitution or bylaws of the
4 society.
5 (6) The board of directors is elected by the supreme
6 legislative or governing body, except in case of filling a
7 vacancy in the interim between meetings of that body.
8 (7) The officers are elected either by the supreme
9 legislative or governing body or by the board of directors.
10 (8) The members, officers, representatives or delegates
11 are not permitted to vote by proxy.
12 § 4503. Exemption from general insurance law.
13 Except as otherwise provided in this chapter, a fraternal
14 benefit society holding a certificate of authority shall not be
15 subject to the other provisions of this title. A statute
16 relating to the business of insurance does not apply to a
17 society unless the statute specifically refers and applies to a
18 society subject to this chapter. To the extent that statutes and
19 regulations are applicable to societies, the terms thereof shall
20 be deemed of no effect to the extent they are inconsistent with
21 the express terms of this chapter.
22 § 4504. Taxation.
23 Every society organized or licensed under this chapter is
24 deemed a charitable and benevolent institution, and all of its
25 funds shall be exempt from all and every state, county,
26 district, municipal and school tax other than taxes on real
27 estate and office equipment.
28 § 4505. Applicability of chapter.
29 (a) General rule.--This chapter does not apply to any of the
30 following:
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1 (1) Grand or subordinate lodges of societies, orders or
2 associations now doing business in this Commonwealth which
3 provide benefits exclusively through local or subordinate
4 lodges.
5 (2) Orders, societies or associations which admit to
6 membership only persons engaged in one or more crafts or
7 hazardous occupations, in the same or similar lines of
8 business, insuring only their own members and their families,
9 and the auxiliaries to such orders, societies or
10 associations.
11 (3) Domestic societies which limit their membership to
12 employees of a particular municipal corporation, firm or
13 corporation which provide for a death benefit of not more
14 than $400 or disability benefits of not more than $350 to any
15 person in any one year, or both.
16 (4) Domestic religious, charitable or benevolent
17 societies or associations which provide for a death benefit
18 of not more than $400 or for disability benefits of not more
19 than $350 to any one person in any one year, or both.
20 (b) Coverage extended.--Any society or association described
21 in subsection (a)(3) or (4) which provides for death or
22 disability benefits for which benefit certificates are issued,
23 and any such society or association described in subsection
24 (a)(4) which has more than 1,000 members, is not exempt from
25 this chapter.
26 (c) Prohibition.--A society which is exempt under this
27 section from the requirements of this chapter, except a society
28 described in subsection (a)(2), shall not give or allow, or
29 promise to give or allow, to any person any compensation for
30 procuring new members.
19850H1962B2642 - 443 -
1 (d) Accidental death or disability benefits.--Every society
2 which provides for benefits in case of death or disability
3 resulting solely from accident, and which does not obligate
4 itself to pay death or sick benefits arising from natural
5 causes, is subject to this chapter except that the provisions
6 relating to medical examination, valuations of benefit
7 certificates and incontestability do not apply.
8 (e) Verification of exemptions.--The commissioner may
9 require from any society or association, by examination or
10 otherwise, such information as will enable him to determine
11 whether the society or association is exempt from this chapter.
12 (f) Provisions in other chapters.--The provisions of this
13 chapter prevail over any inconsistent provisions in Chapter 41
14 (relating to beneficial societies) or 43 (relating to Fraternal
15 Benefit Society Code of 1972).
16 SUBCHAPTER B
17 ORGANIZATION AND CORPORATE OPERATIONS
18 Sec.
19 4511. Initial organization.
20 4512. Filing of initial papers with commissioner.
21 4513. Validity of preliminary certificate.
22 4514. Solicitation of members.
23 4515. Examination by commissioner.
24 4516. Exemption.
25 4517. Approval of documents.
26 4518. General corporate powers of societies.
27 4519. Review of orders of commissioner.
28 4520. Classes of membership.
29 4521. Prohibition of activity.
30 4522. Location of offices and meetings.
19850H1962B2642 - 444 -
1 4523. Consolidations and mergers.
2 4524. Amendments to articles of incorporation, constitution
3 and bylaws.
4 4525. Institutions.
5 4526. Personal liability.
6 4527. Waiver.
7 4528. Conversion of society into mutual life insurance
8 company.
9 4529. Reinsurance.
10 § 4511. Initial organization.
11 The organization of a society shall be as provided in this
12 subchapter. Seven or more citizens of the United States, a
13 majority of whom are citizens of this Commonwealth, who desire
14 to form a fraternal benefit society, may make, sign and
15 acknowledge before an officer competent to take acknowledgment
16 of deeds or articles of incorporation, in which the following
17 shall be stated:
18 (1) The proposed corporate name of the society, which
19 shall not so closely resemble the name of any society or
20 insurance company as to be misleading or confusing.
21 (2) The purposes for which it is being formed and the
22 mode in which its corporate powers are to be exercised. The
23 purposes shall not include more liberal powers than are
24 granted by this chapter. Any lawful, social, intellectual,
25 educational, charitable, benevolent, moral, fraternal or
26 religious advantages may be set forth among the purposes of
27 the society.
28 (3) The names and residences of the incorporators and
29 the names, residences and official titles of all the
30 officers, trustees, directors or other persons who are to
19850H1962B2642 - 445 -
1 have and exercise the general control of the management of
2 the affairs and funds of the society for the first year or
3 until the ensuing election at which all such officers shall
4 be elected by the supreme legislative or governing body. This
5 election shall be held not later than one year from the date
6 of the issuance of the permanent certificate.
7 § 4512. Filing of initial papers with commissioner.
8 The articles of incorporation, certified copies of the
9 constitution and rules, copies of all proposed forms of
10 certificates, applications therefor, receipts and circulars to
11 be issued by the society and a bond conditioned upon the return
12 to applicants of the advanced payments if the organization is
13 not completed within one year shall be filed with the
14 commissioner, who may require such further information as is
15 necessary. The bond with sureties approved by the commissioner
16 shall be in an amount, not less than $5,000 nor more than
17 $25,000, required by the commissioner. All documents filed shall
18 be in the English language. If the purposes of the society
19 conform to the requirements of this chapter and all provisions
20 of this chapter have been complied with, the commissioner shall
21 so certify, retain and file the articles of incorporation and
22 furnish the incorporators with a preliminary certificate
23 authorizing the society to solicit members.
24 § 4513. Validity of preliminary certificate.
25 A preliminary certificate granted under this chapter shall
26 not be valid after one year from its date or after such other
27 period, not exceeding one year, as is authorized by the
28 commissioner upon cause shown, unless the 500 applicants
29 required under section 4514 (relating to solicitation of
30 members) have been secured and the organization has been
19850H1962B2642 - 446 -
1 completed as herein provided. The articles of incorporation and
2 all other proceedings thereunder shall become void one year from
3 the date of the preliminary certificate, or at the expiration of
4 the extended period, unless the society completes its
5 organization and receives a certificate of authority to do
6 business within that period.
7 § 4514. Solicitation of members.
8 Upon receipt of a preliminary certificate from the
9 commissioner, the society may solicit members for the purpose of
10 completing its organization, shall collect from each applicant
11 the amount of not less than one regular monthly premium in
12 accordance with its table of premiums as provided by its
13 constitution and bylaws and shall issue to each applicant a
14 receipt for the amount so collected. A society shall not incur
15 any liability other than for the return of such advance premium,
16 nor issue any certificate, nor pay or allow, or offer or promise
17 to pay or allow, any death or disability benefit to any person
18 until:
19 (1) Actual bona fide applications for death benefits
20 have been secured aggregating at least $500,000 on not less
21 than 500 lives.
22 (2) All applicants for death benefits furnish evidence
23 of insurability satisfactory to the society.
24 (3) Certificates of examinations or acceptable
25 declarations of insurability are duly filed and approved by
26 the chief medical examiner of the society.
27 (4) Ten subordinate lodges or branches are established
28 into which the 500 applicants are admitted.
29 (5) There is submitted to the commissioner, under oath
30 of the president, secretary or corresponding officer of the
19850H1962B2642 - 447 -
1 society, a list of the applicants, giving their names,
2 addresses, date each was admitted, name and number of the
3 subordinate branch of which each applicant is a member,
4 amount of benefits to be granted and premiums therefor.
5 (6) A sworn statement of the treasurer or corresponding
6 officer of the society is filed with the commissioner,
7 stating that at least 500 applicants have each paid in cash
8 at least one regular monthly premium, which premiums in the
9 aggregate shall total at least $2,500, all of which shall be
10 credited to the fund or funds from which benefits are to be
11 paid and no part of which may be used for expenses. The
12 advance premiums shall be held in trust during the period of
13 organization, and if the society has not qualified for a
14 certificate of authority within one year, the premiums shall
15 be returned to the applicants.
16 § 4515. Examination by commissioner.
17 The commissioner may make such examination and require such
18 further information as is advisable. Upon presentation of
19 satisfactory evidence that the society has complied with all the
20 provisions of this chapter, he shall issue to the society a
21 certificate to that effect, stating that the society is
22 authorized to transact business under this chapter. The
23 certificate shall be prima facie evidence of the existence of
24 the society on the date of the certificate. The commissioner
25 shall cause a record of the certificate to be made; a certified
26 copy of this record may be given in evidence with like effect as
27 the original certificate.
28 § 4516. Exemption.
29 The provisions of sections 4514 (relating to solicitation of
30 members) and 4515 (relating to examination by commissioner) do
19850H1962B2642 - 448 -
1 not apply to:
2 (1) Any society organized prior to April 6, 1893, under
3 any statute of this Commonwealth which was engaged in doing
4 business in this Commonwealth on that date. Any such society
5 may exercise all the rights conferred by this chapter and all
6 the rights, powers, privileges and exemptions now exercised
7 or possessed by it, under its charter or articles of
8 incorporation or articles of association, and neither its
9 existence as a corporation nor its right to exercise any
10 corporate rights vested in it by virtue of its past
11 incorporation are affected by this chapter. Any corporation
12 described in this paragraph shall be deemed a holder of a
13 certificate of authority issued under this chapter.
14 (2) Any society incorporated under the provisions of the
15 act of April 6, 1893 (P.L.10, No.6), the act of May 20, 1921
16 (P.L.916, No.324) or the act of July 17, 1935 (P.L.1092,
17 No.357), relating to fraternal benefit societies.
18 § 4517. Approval of documents.
19 A society authorized to transact business under this chapter
20 shall not issue any insurance forms, endorsements or riders
21 without first having obtained approval thereof by the
22 commissioner.
23 § 4518. General corporate powers of societies.
24 Every society may adopt a constitution and bylaws for the
25 government of the society, the admission of its members, the
26 management of its affairs and the fixing of the premiums of its
27 members. It may change, alter, add to or amend the constitution
28 and bylaws and do such other acts as are necessary and
29 incidental to carrying into effect the objects and purposes of
30 the society.
19850H1962B2642 - 449 -
1 § 4519. Review of orders of commissioner.
2 Orders of the commissioner upon an application for a
3 certificate of authority under this subchapter shall be subject
4 to judicial review as provided by law.
5 § 4520. Classes of membership.
6 (a) General rule.--Every society authorized to do business
7 in this Commonwealth may admit to membership two classes of
8 members: benefit members and social members by whatever name
9 known. Social members shall not be entitled to any of the
10 benefits prescribed by sections 4531 (relating to benefits) and
11 4532 (relating to benefits on lives of children) and shall have
12 no voice in the management of the insurance affairs of the
13 society. Benefit members may be either adult members or juvenile
14 members. Juvenile members shall have no voice in the management
15 of the insurance affairs of the society.
16 (b) Adult benefit membership.--The society may admit to
17 adult benefit membership any person not less than 15 years of
18 age at the nearest birthday. Any person so admitted prior to
19 attaining the full age of 18 years shall be deemed competent to
20 contract for insurance benefits and to enjoy every right,
21 privilege and benefit provided by any insurance certificate on
22 the minor subject to the limitations contained in section 4532
23 as to the designation of beneficiary.
24 (c) Evidence of insurability.--Every adult benefit member
25 entitled to insurance benefits shall, as to each application for
26 insurance, furnish evidence of insurability acceptable to the
27 society.
28 § 4521. Prohibition of activity.
29 An unincorporated or voluntary association may not transact
30 business in this Commonwealth as a fraternal benefit society
19850H1962B2642 - 450 -
1 unless the association incorporates under this chapter.
2 § 4522. Location of offices and meetings.
3 The principal office of any domestic society shall be located
4 in this Commonwealth. The meetings of its supreme legislative or
5 governing body may be held in any state or country in North
6 America and all business transacted at such meetings shall be as
7 valid as if the meetings were held in this Commonwealth.
8 § 4523. Consolidations and mergers.
9 (a) Right to consolidate or merge.--A domestic society may
10 consolidate or merge with any other society by complying with
11 this section.
12 (b) Statements to be filed.--The societies shall file all of
13 the following with the commissioner:
14 (1) A certified copy of the written contract containing,
15 in full, the terms and conditions of the consolidation or
16 merger.
17 (2) A sworn statement by the president and secretary or
18 corresponding officers of each society showing the financial
19 condition thereof on a date fixed by the commissioner but not
20 earlier than the December 31 next preceding the date of the
21 contract.
22 (3) A certificate of such officers, verified by all of
23 them, that the consolidation or merger has been approved by a
24 two-thirds vote of the supreme legislative or governing body
25 of each society.
26 (4) Evidence that at least 60 days prior to the action
27 of the supreme legislative or governing body of each society,
28 the text of the contract was furnished to all members of each
29 society either by mail or by publication in full in the
30 official organ of each society.
19850H1962B2642 - 451 -
1 (c) Approval by commissioner.--If the commissioner finds
2 that the contract is in conformity with this section, that the
3 financial statements are correct and that the consolidation or
4 merger is just and equitable to the members of each society, he
5 shall issue a certificate stating that he approves the contract.
6 Upon approval, the contract shall be effective unless any
7 society which is a party to the contract is incorporated under
8 the law of any other state. In such event the consolidation or
9 merger shall not become effective until it is approved as
10 provided by the law of that state and a certificate of such
11 approval is filed with the commissioner. If the law of the state
12 contains no such provision, then the consolidation or merger
13 shall not become effective until it is approved by the
14 commissioner of insurance of the state and a certificate of
15 approval filed with the commissioner.
16 (d) Property merged.--Upon the consolidation or merger
17 becoming effective, all the rights and interests of the
18 consolidated or merged societies in every kind of property and
19 things in action pertaining thereto shall be vested in the
20 society remaining after the consolidation or merger without any
21 other instrument. Conveyances of real property may be evidenced
22 by proper deeds, and the title to any real estate or interest
23 therein vested in any of the societies consolidated or merged
24 shall not revert or be impaired by reason of the consolidation
25 or merger, but shall vest in the society remaining after the
26 consolidation or merger.
27 (e) Affidavit as evidence.--The affidavit of any officer of
28 the society or of anyone authorized by it to mail any notice or
29 document, stating that the notice or document has been duly
30 addressed and mailed, shall be prima facie evidence that the
19850H1962B2642 - 452 -
1 notice or document has been furnished the addressee.
2 § 4524. Amendments to articles of incorporation, constitution
3 and bylaws.
4 (a) Power to amend.--A domestic society may amend its
5 articles of incorporation, constitution or bylaws, in accordance
6 with the provisions thereof, by action of its supreme
7 legislative or governing body at any regular or special meeting
8 or, if its articles of incorporation, constitution or bylaws so
9 provide, by referendum. The referendum may be held in accordance
10 with the provisions of its articles of incorporation,
11 constitution or bylaws by the vote of the voting members of the
12 society, by the vote of delegates or representatives of voting
13 members or by the vote of local lodges or branches. An amendment
14 submitted for adoption by referendum shall not be adopted
15 unless, within six months from the date of submission thereof, a
16 majority of all of the voting members of the society have
17 signified their consent to the amendment by one of the methods
18 provided in this subsection.
19 (b) Approval of commissioner.--An amendment shall not take
20 effect until approved by the commissioner, who shall approve the
21 amendment if he finds that it has been adopted and is not
22 inconsistent with any requirement of law or with the character,
23 objects and purposes of the society. Unless the commissioner
24 disapproves the amendment within 60 days after filing, the
25 amendment shall be deemed approved. The approval or disapproval
26 of the commissioner shall be in writing and mailed to the
27 secretary or corresponding officer of the society at its
28 principal office. If the commissioner disapproves the amendment,
29 the reasons shall be stated in the written notice.
30 (c) Copies of changes.--Within 90 days from approval by the
19850H1962B2642 - 453 -
1 commissioner, the amendments or a summary thereof shall be
2 furnished to all members of the society either by mail or by
3 publication in full in the official organ of the society. The
4 affidavit of any officer of the society or of anyone authorized
5 by it to mail any amendments or summary thereof, stating facts
6 which show that these have been addressed and mailed, shall be
7 prima facie evidence that the amendments or summary have been
8 furnished to the addressee.
9 (d) Power of commissioner to review.--The commissioner may
10 review existing articles of incorporation, constitutions and
11 bylaws of domestic fraternal benefit societies at any time in
12 order to determine whether they comply with the minimum
13 standards set forth in this chapter.
14 (e) Foreign or alien societies.--Every authorized foreign or
15 alien society authorized to do business in this Commonwealth
16 shall file with the commissioner a duly certified copy of all
17 amendments of, or additions to, its articles of incorporation,
18 constitution or bylaws within 90 days after their enactment.
19 (f) Printed copies as evidence.--Printed copies of the
20 constitution or bylaws as amended, certified by the secretary or
21 corresponding officer of the society, shall be prima facie
22 evidence of the legal adoption thereof.
23 § 4525. Institutions.
24 (a) Power to own or establish.--A society may create,
25 maintain and operate charitable, benevolent or educational
26 institutions for the benefit of its members and their families
27 and dependents and for the benefit of children insured by the
28 society. For this purpose it may own, hold or lease personal
29 property or real property located in or outside this
30 Commonwealth, with necessary buildings thereon. This property
19850H1962B2642 - 454 -
1 shall be reported in every annual statement but shall not be
2 allowed as an admitted asset of the society.
3 (b) Nonprofit operation.--Maintenance, treatment and proper
4 attendance in any such institution may be furnished free or a
5 reasonable charge may be made therefor, but no such institution
6 shall be operated for profit. The society shall maintain a
7 separate accounting of any income and disbursements under this
8 section and report them in its annual statement. A society shall
9 not own or operate any funeral home or undertaking
10 establishment.
11 § 4526. Personal liability.
12 The officers and members of the supreme, grand or any
13 subordinate body of a society shall not be personally liable for
14 payment of any benefits provided by a society.
15 § 4527. Waiver.
16 The constitution and bylaws of the society shall provide that
17 no subordinate body, subordinate officer or member may waive any
18 of the provisions of the constitution or bylaws of the society.
19 This provision shall be binding on the society and every member
20 and beneficiary of a member.
21 § 4528. Conversion of society into mutual life insurance
22 company.
23 Any domestic fraternal benefit society may be converted and
24 licensed as a mutual life insurance company by compliance with
25 all the applicable financial requirements of this title if the
26 plan of conversion is approved by the commissioner. The plan
27 shall be prepared in writing setting forth all the terms and
28 conditions thereof. The board of directors shall submit the plan
29 to the supreme legislative or governing body of the society at
30 any regular or special meeting thereof, by giving a complete
19850H1962B2642 - 455 -
1 copy of the plan with the notice of such meeting. The notice
2 shall be given as provided in the bylaws of the society for a
3 regular or special meeting of the body, as the case may be. The
4 affirmative vote of two-thirds of all members of the body shall
5 be necessary for the approval of the agreement. A conversion
6 shall not take effect until approved by the commissioner, who
7 may give approval if he finds that the proposed change is in
8 conformity with the requirements of law and not prejudicial to
9 the certificate holders of the society.
10 § 4529. Reinsurance.
11 A domestic society may, by a reinsurance agreement, cede any
12 individual risk or risks in whole or in part to an insurer,
13 other than another society, having the power to make such
14 reinsurance and authorized to do business in this Commonwealth,
15 or if not so authorized, one which is approved by the
16 commissioner. The society may not reinsure in excess of 50% all
17 of its insurance in force without the written permission of the
18 commissioner. It may take credit for the reserves on the ceded
19 risks to the extent reinsured, but no credit shall be allowed as
20 an admitted asset or as a deduction from liability to a ceding
21 society for reinsurance made, ceded, renewed or otherwise
22 becoming effective unless the reinsurance is payable by the
23 assuming insurer on the basis of the liability of the ceding
24 society under the contract reinsured without diminution because
25 of the insolvency of the ceding society.
26 SUBCHAPTER C
27 BENEFITS AND BENEFICIARIES
28 Sec.
29 4531. Benefits.
30 4532. Benefits on lives of children.
19850H1962B2642 - 456 -
1 4533. Benefit options.
2 4534. Beneficiaries.
3 4535. Attachment of benefits.
4 4536. Contract for benefits.
5 § 4531. Benefits.
6 (a) Power to grant benefits.--Any society holding a
7 certificate of authority under this chapter may enter into
8 contracts in such forms and grant such benefits as its bylaws
9 may authorize. In the case of life insurance benefits, the
10 society shall provide for the accumulation and maintenance of
11 assets required for the payment of these benefits, when valued
12 upon an interest basis, not exceeding 4% a year, and mortality
13 standards adopted by it within the limitations provided in this
14 chapter or, at the option of the society, in Chapter 53
15 (relating to life insurance). Any life certificates issued on a
16 renewable term basis shall set forth clearly the successive
17 future rates of contribution to be paid under the contract.
18 (b) Family eligibility.--Benefits may be provided on the
19 lives of members or, upon application of a member, on the lives
20 of the member's family, including the member, the member's
21 spouse and minor children, in the same or separate certificates.
22 § 4532. Benefits on lives of children.
23 (a) General rule.--A society may provide for insurance
24 benefits, annuity benefits or both on the lives of children
25 under the minimum age for adult membership but not greater than
26 18 years of age at the time of application therefor, upon the
27 application of some adult person, as its bylaws or rules may
28 provide, which benefits shall be in accordance with section
29 4531(a) (relating to benefits). A society may organize and
30 operate branches for such children. Membership and initiation in
19850H1962B2642 - 457 -
1 local lodges shall not be required of such children, nor shall
2 they have any voice in the management of the society.
3 (b) Powers.--A society may provide for the designation and
4 changing of designation of beneficiaries in the certificates
5 providing for the benefits and provide in all other respects for
6 the regulation of the certificates and all rights, obligations
7 and liabilities incident thereto.
8 § 4533. Benefit options.
9 (a) Authorization.--A society may grant paid-up
10 nonforfeiture benefits, cash surrender values, certificate loans
11 and such other options as its bylaws permit. The society shall
12 grant by means of the certificate at least one paid-up
13 nonforfeiture benefit, except in the case of pure endowment,
14 annuity or reversionary annuity contracts, reducing term
15 insurance contracts or contracts of term insurance of a uniform
16 amount of 15 years or less expiring before 66 years of age.
17 (b) Reserves computed on certain tables.--In the case of
18 certificates for which reserves are computed on the
19 commissioner's 1941 Standard Ordinary Mortality Table, the 1941
20 Standard Industrial Table or the commissioner's 1958 Standard
21 Ordinary Mortality Table or any more recent table made
22 applicable to life insurance companies, every paid-up
23 nonforfeiture benefit and the amount of any cash surrender
24 value, loan or other option granted shall not be less than the
25 corresponding amount ascertained in accordance with the
26 provisions of this title applicable to life insurance companies
27 issuing policies containing similar insurance benefits based
28 upon those tables.
29 (c) Computation of certain benefits.--In the case of
30 certificates other than those for which reserves are computed on
19850H1962B2642 - 458 -
1 the commissioner's 1941 Standard Ordinary Mortality Table, the
2 1941 Standard Industrial Table or the commissioner's 1958
3 Standard Ordinary Mortality Table, or any more recent table made
4 applicable to life insurance companies the value of every paid-
5 up nonforfeiture benefit and the amount of any cash surrender
6 value, loan or other option granted shall not be less than the
7 excess, if any, of paragraph (1) over paragraph (2) as follows:
8 (1) The reserve under the certificate determined on the
9 basis specified in the certificate.
10 (2) The sum of any indebtedness to the society on the
11 certificate, including interest due and accrued, and a
12 surrender charge equal to 2.5% of the face amount of the
13 certificate, which, in the case of insurance on the lives of
14 children, shall be the ultimate face amount of the
15 certificate, if death benefits provided therein are graded.
16 (d) Reserves computed on substandard basis.--In the case of
17 certificates issued on a substandard basis or in the case of
18 certificates, the reserves for which are computed upon the
19 American Men Ultimate Table of Mortality the term of any
20 extended insurance benefit granted including any accompanying
21 pure endowment may be computed upon the rates of mortality not
22 greater than 130% of those shown by the mortality table
23 specified in the certificate for the computation of the reserve.
24 § 4534. Beneficiaries.
25 (a) Power to change beneficiaries.--Unless otherwise
26 provided in the contract:
27 (1) The member shall have the right at all times to
28 change the beneficiary or beneficiaries and to assign the
29 certificate.
30 (2) A beneficiary shall not have or obtain any interest
19850H1962B2642 - 459 -
1 in the proceeds of any certificate until a certificate
2 becomes due and payable in conformity with its provisions.
3 (b) Limitation on scope of beneficiaries.--The society by
4 its constitution, bylaws and rules may limit the scope of
5 beneficiaries.
6 (c) Payment of funeral benefits.--A society may make
7 provision for the payment of funeral benefits to the extent of
8 such portion of any payment under a certificate as might
9 reasonably appear to be due to any person equitably entitled
10 thereto by reason of having incurred expense occasioned by the
11 burial of the member, but the portion so paid shall not exceed
12 $1,000.
13 (d) Payment to personal representative.--If at the death of
14 any member there is no lawful beneficiary to whom the insurance
15 benefits are payable, the amount of the benefits, except to the
16 extent that funeral benefits may be paid under subsection (c),
17 shall be payable to the personal representative of the deceased
18 member.
19 § 4535. Attachment of benefits.
20 Money or other benefit, charity, relief or aid to be provided
21 by any society shall not be liable to attachment, garnishment or
22 other process, or to be applied by any legal or equitable
23 process or operation of law, to pay any debt or liability of a
24 member or beneficiary or any other person who may have a right
25 thereunder, either before or after payment by the society.
26 § 4536. Contract for benefits.
27 (a) Materials forming contract.--Every society authorized to
28 do business in this Commonwealth shall issue a certificate to
29 the benefit member, or the spouse of a member, or to the
30 applicant for a minor, specifying the amount of benefits
19850H1962B2642 - 460 -
1 provided thereby. The certificate, together with any riders or
2 endorsements attached thereto, the charter or articles of
3 incorporation, the constitution and bylaws of the society, any
4 application for benefits and declaration of insurability signed
5 by the applicant and all amendments to these shall constitute
6 the agreement, as of the date of issuance, between the society
7 and the member, and the certificate shall so state. A copy of
8 any application for benefits and of any declaration of
9 insurability shall be endorsed upon or attached to the
10 certificate.
11 (b) Statements and waiver.--All statements purporting to be
12 made by the member shall be representations and not warranties.
13 Any waiver of this provision shall be void.
14 (c) Amendments.--Any amendment to the charter or articles of
15 incorporation, constitution or bylaws, made or enacted
16 subsequent to the issuance of the certificate, shall bind the
17 member and the beneficiaries, and shall control the agreement as
18 though in force at the time of the application for membership.
19 However, no amendment shall diminish benefits which the society
20 contracted to give the member as of the date of issuance.
21 (d) Responsibility of members for deficiency.--Every society
22 shall contain a provision in its bylaws and in each certificate
23 of life insurance it issues, to which every certificate of
24 insurance issued by the society shall be subject, that if the
25 financial position of the society becomes impaired, subject to
26 the prior written approval of the commissioner, the board of
27 directors or the supreme governing body may determine on an
28 equitable basis the proportionate share of the deficiency of
29 each member of the society. Each benefit member may then either
30 pay his share of the deficiency, accept the imposition of a lien
19850H1962B2642 - 461 -
1 on the certificate of insurance or accept a proportionate
2 reduction in benefits under his certificate. The society may
3 specify the manner of the election and which alternative is to
4 be presumed if no election is made, subject to the prior written
5 approval of the commissioner in the case of domestic societies.
6 Any lien on a certificate of insurance shall bear interest at
7 the rate charged on policy loans under the certificate, if
8 applicable, or otherwise at a rate approved by the commissioner,
9 compounded annually until paid.
10 SUBCHAPTER D
11 CERTIFICATES
12 Sec.
13 4541. Approval of certificates.
14 4542. Criteria of review.
15 4543. Statement of title and premiums.
16 4544. Membership provisions.
17 4545. Default.
18 4546. Tables.
19 4547. Redetermination of premiums.
20 4548. Surplus.
21 4549. Loan value.
22 § 4541. Approval of certificates.
23 (a) General rule.--A fraternal benefit society doing
24 business in this Commonwealth shall not issue, sell or dispose
25 of any certificate, covering life, health, accident or any other
26 contract of insurance or any contracts pertaining to a pure
27 endowment or annuity, or use applications, riders or
28 endorsements in connection therewith, until the forms of the
29 same have been filed with and approved by the commissioner.
30 However, riders and endorsements relating to the manner of
19850H1962B2642 - 462 -
1 distribution of benefits, and to the reservation of rights and
2 benefits under any such certificate, and used at the request of
3 the individual certificate holder, and any forms which, in the
4 opinion of the commissioner, do not require approval need not be
5 filed under this section.
6 (b) Deemed approval.--Forms so filed shall be deemed
7 approved at the expiration of 30 days after filing, unless
8 earlier approved or disapproved by the commissioner. The
9 commissioner, by written notice to the society within the 30-day
10 period, may extend the period for approval or disapproval for an
11 additional 30 days.
12 (c) Voiding of approval.--Such approval shall become void
13 upon any subsequent notice of disapproval from the commissioner,
14 or upon any subsequent withdrawal of license or refusal of the
15 commissioner to relicense the society, or upon the subsequent
16 passage of a statute which would no longer make such contracts
17 or related forms a fit subject for approval, except that this
18 provision shall not affect contracts issued prior thereto.
19 (d) Notification of disapproval.--Upon any disapproval, the
20 commissioner shall notify the society in writing, specifying the
21 reason for disapproval. Within 30 days from the date of mailing
22 of the notice to the society, the society may make written
23 application to the commissioner for a hearing thereon. The
24 hearing shall be held within 30 days after receipt of the
25 application. The procedure before the commissioner shall be in
26 accordance with the adjudication procedure set forth in 2
27 Pa.C.S. Ch. 5 Subch. A (relating to practice and procedure of
28 Commonwealth agencies), and the society shall be entitled to
29 judicial review under 2 Pa.C.S. Ch. 7 Subch. A (relating to
30 judicial review of Commonwealth agency action).
19850H1962B2642 - 463 -
1 (e) Penalty.--Any person that, either as principal or agent,
2 issues or causes to be issued any certificate or contract of
3 insurance in this Commonwealth, contrary to this section,
4 commits a misdemeanor of the third degree.
5 (f) Civil penalties.--Upon satisfactory evidence of the
6 violation of this section by any person, the commissioner may
7 pursue any one or more of the following courses of action:
8 (1) Suspend or revoke the license of the offending
9 person.
10 (2) Refuse, for a period of not to exceed one year
11 thereafter, to issue a new license to the person.
12 (3) Impose a fine of not more than $1,000 for each act
13 in violation of this chapter.
14 § 4542. Criteria for review.
15 (a) Required provisions.--The certificate shall contain in
16 substance the standard provisions set forth in sections 4543
17 (relating to statement of title and premiums) through 4549
18 (relating to loan value) or, in lieu thereof, provisions which
19 are more favorable to the member. Any of the mandated provisions
20 or portions thereof not applicable by reason of the plan of
21 insurance or because the certificate is an annuity certificate
22 may, to the extent inapplicable, be omitted from the
23 certificate.
24 (b) Prohibited provisions.--A life benefit certificate shall
25 not be delivered or issued for delivery in this Commonwealth
26 containing in substance any of the following provisions:
27 (1) Any provision limiting the time within which any
28 action at law or in equity may be commenced to less than two
29 years after the cause of action shall accrue.
30 (2) Any provision by which the certificate shall purport
19850H1962B2642 - 464 -
1 to be issued or to take effect more than six months before
2 the original application for the certificate was made, except
3 in case of transfer from one form of certificate to another
4 in connection with which the member is to receive credit for
5 any reserve accumulation under the form of certificate from
6 which the transfer is made.
7 (3) Any provision for forfeiture of the certificate for
8 failure to repay any loan thereon or to pay interest on such
9 loan while the total indebtedness, including interest, is
10 less than the loan value of the certificate.
11 § 4543. Statement of title and premiums.
12 There shall appear on the face of the filing page of the
13 certificate a statement of the title of the certificate and a
14 brief description which clearly and correctly describes its form
15 and identifies the insurer as a member of a fraternal benefit
16 society. There shall also appear a provision stating the amount
17 of premiums, dues or other required contributions, by whatever
18 name known, which are payable by the insured under the
19 certificate.
20 § 4544. Membership provisions.
21 (a) Right to maintain insurance.--There shall be a statement
22 that any benefit member expelled or suspended, except for
23 nonpayment of a premium or within the contestable period for
24 material misrepresentations in the member's application for
25 membership, may maintain his insurance in force by continuing
26 payment of the required premium.
27 (b) Grace period.--There shall be a provision that the
28 member is entitled to a grace period of not less than a full
29 month, or 30 days at the option of the society in which the
30 payment of any premium after the initial premium may be made.
19850H1962B2642 - 465 -
1 During the grace period the certificate shall continue in full
2 force, but if the certificate becomes a claim during the grace
3 period before the overdue payment is made, the amount of the
4 overdue payment or payments may be deducted in any settlement
5 under the certificate.
6 (c) Reinstatement.--There shall be a provision that the
7 member shall be entitled to have the certificate reinstated at
8 any time within three years from the due date of the premium in
9 default, unless the certificate has been completely terminated
10 through the application of a nonforfeiture benefit, cash
11 surrender value or certificate loan, upon the production of
12 evidence of insurability satisfactory to the society and the
13 payment of all overdue premiums and any other indebtedness to
14 the society upon the certificate together with any interest on
15 the premiums and the indebtedness, at a rate not exceeding 6% a
16 year compounded annually.
17 (d) Contestability.--There shall be a provision that the
18 certificate shall be incontestable after it has been in force
19 during the lifetime of the member for a period of two years from
20 its date of issue except for nonpayment of premiums. At the
21 option of the society, supplemental provisions relating to
22 waiver of premium and provisions which grant additional
23 insurance specifically against death by accident may also be
24 excepted. The certificate may provide, as to statements made to
25 procure reinstatement, that the society may contest a reinstated
26 certificate within a period of two years from the date of
27 reinstatement based on the information in the reinstatement
28 application.
29 § 4545. Default.
30 (a) Paid-up nonforfeiture benefits.--There shall be a
19850H1962B2642 - 466 -
1 provision that, in the event of default in payment of any
2 premium after three full years premiums have been paid or after
3 premiums for a lesser period have been paid if the contract so
4 provides, the society will grant, upon proper request not later
5 than 60 days after the due date of the premium in default, a
6 paid-up nonforfeiture benefit on the plan stipulated in the
7 certificate, effective as of the due date, of such value as
8 specified in this chapter.
9 (b) Optional payment provisions.--The certificate may
10 provide, if the society's bylaws so specify and if the member so
11 elects prior to the expiration of the grace period of any
12 overdue premium, that default does not occur so long as premiums
13 can be paid under an arrangement for automatic premium loan as
14 set forth in the certificate.
15 (c) Election of other paid-up nonforfeiture benefits.--There
16 shall be a statement that one paid-up nonforfeiture benefit as
17 specified in the certificate shall become effective
18 automatically unless the member elects another available paid-up
19 nonforfeiture benefit, not later than 60 days after the due date
20 of the premium in default.
21 (d) Applicability of section.--This section does not apply
22 in the case of pure endowment, annuity or reversionary annuity
23 contracts, reducing term insurance contracts, or contracts of
24 term insurance of uniform amount of 15 years or less expiring
25 before 66 years of age.
26 § 4546. Tables.
27 (a) Mortality table and interest rate.--There shall be a
28 statement of the mortality table and rate of interest used in
29 determining all paid-up nonforfeiture benefits and cash
30 surrender options available under the certificate and a brief
19850H1962B2642 - 467 -
1 general description of the method used in calculating such
2 benefits.
3 (b) Table of certain values.--There shall be a table showing
4 in numbers the value of every paid-up nonforfeiture benefit and
5 cash surrender option available under the certificate for each
6 certificate anniversary either during the first 20 certificate
7 years or during the term of the certificate, whichever is
8 shorter.
9 § 4547. Redetermination of premiums.
10 There shall be a provision that in case the age or sex of the
11 member or of any other person is considered in determining the
12 premium and it is found at any time before final settlement
13 under the certificate that the age or sex has been misstated,
14 and the discrepancy and premium involved have not been adjusted,
15 the amount payable under the certificate shall be such as the
16 premium would have purchased at the correct age and sex. If the
17 correct age was not an insurable age under the society's charter
18 or laws, only the premiums paid to the society, less any
19 payments previously made to the member, shall be returned or, at
20 the option of the society, the amount payable under the
21 certificate shall be such as the premium would have purchased at
22 the correct age according to the society's promulgated rates and
23 any extension thereof based on actuarial principles.
24 § 4548. Surplus.
25 (a) Right to surplus.--There shall be a provision that the
26 certificate shall participate in the surplus of the society, and
27 that, beginning not later than the end of the third certificate
28 year, the society will annually determine the portion of the
29 divisible surplus accruing on the certificate, and that the
30 member entitled to elect the option may have the dividend
19850H1962B2642 - 468 -
1 arising from such participation paid in cash or applied in
2 accordance with any one of the other dividend options as
3 provided by the certificate. If any such other dividend options
4 are provided, the certificate shall further state which option
5 shall be automatically effective, if the member has not elected
6 a different option.
7 (b) Optional surplus provision.--The certificate may contain
8 a provision that the certificate shall participate in the
9 surplus of the society, and that, beginning not later than the
10 end of the fifth certificate year, the society will determine
11 the portion of the divisible surplus accruing on the
12 certificate, and that the member entitled thereto may have the
13 current dividend arising from such participation paid in cash,
14 and that, at periods of not more than five years thereafter,
15 such apportionment and payment shall be done at the option of
16 the member.
17 (c) Surplus on term certificates.--Renewable term
18 certificates of ten years or less may provide that the surplus
19 accruing to such certificates shall be determined and
20 apportioned each year after the second certificate year, and
21 accumulated during each renewal period, and that at the end of
22 any renewal period, or renewal of the certificate by the member,
23 the society shall apply the accumulated surplus as an annuity
24 for the next succeeding renewal term to the reduction of
25 premiums.
26 § 4549. Loan value.
27 There shall be a provision for a loan value at any time after
28 three full years' premiums have been paid and while no premium
29 is in default beyond the grace period of payment. The loan
30 provision shall further provide that the society will advance,
19850H1962B2642 - 469 -
1 on proper assignment or pledge of the certificate, and on the
2 sole security thereof, at a specified rate of interest, a sum
3 equal to or, at the option of the member entitled thereto, less
4 than, the cash surrender value at the end of the current
5 certificate year as required by section 4532 (relating to
6 benefits on lives of children) and that the society may deduct
7 from such loan value, in addition to any indebtedness deducted
8 in determining such value, any unpaid balance of the premium for
9 the current certificate year, and may collect interest in
10 advance on the loan to the end of the current certificate year.
11 The society shall reserve the right to defer such loan, except
12 any made to pay premiums to the society, for six months after
13 application therefor is made. This section does not apply to
14 term insurance.
15 SUBCHAPTER E
16 ACCIDENT, HEALTH AND DISABILITY INSURANCE CONTRACTS
17 Sec.
18 4551. Approval of contracts by commissioner.
19 4552. Conditions for certificates.
20 4553. Standard contract provisions.
21 4554. Entire contract and changes.
22 4555. Time limits on certain defenses.
23 4556. Grace periods.
24 4557. Reinstatement.
25 4558. Claim procedure.
26 4559. Payment of claims.
27 4560. Legal actions.
28 4561. Change of beneficiary.
29 4562. Change of occupation.
30 4563. Conduct of insured.
19850H1962B2642 - 470 -
1 4564. Other insurance.
2 4565. Relation of earnings to insurance.
3 4566. Cancellation.
4 4567. Conformity of provisions with state statutes.
5 4568. Inapplicable provisions.
6 4569. Composition and construction of certificates.
7 § 4551. Approval of contracts by commissioner.
8 A certificate of insurance against loss from sickness or loss
9 or damage from bodily injury or death of the insured by accident
10 shall not be issued or delivered by any society, association or
11 exchange issuing the certificate to any person in this
12 Commonwealth until a copy of the form thereof, and of the
13 classification of risks and the dues, premiums or other required
14 contribution pertaining thereto, have been filed with and
15 approved by the commissioner. If the commissioner notifies the
16 society which has filed the form in writing that it does not
17 comply with the requirements of law, specifying the reason for
18 his opinion, the society shall not issue any certificate in that
19 form. The action of the commissioner in this regard shall be
20 subject to review by the Commonwealth Court.
21 § 4552. Conditions for certificates.
22 (a) General conditions.--A certificate shall not be
23 delivered or issued for delivery to any person in this
24 Commonwealth unless all of the following conditions are met:
25 (1) The entire money and other considerations therefor
26 shall be stated in the certificate.
27 (2) The time at which the insurance takes effect and
28 terminates shall be stated in the certificate.
29 (3) It shall purport to insure only one person, except
30 that upon the application of an adult head of a family, who
19850H1962B2642 - 471 -
1 shall be deemed the certificate holder, a policy may insure,
2 originally or by amendment, any two or more eligible members
3 of that family, including husband, wife, dependent children
4 or any children under a specified age, which shall not exceed
5 19 years of age, and any other person dependent upon the
6 certificate holder.
7 (4) The style, arrangement and overall appearance of the
8 certificate shall give no undue prominence to any portion of
9 the text, and every printed portion of the text of the
10 certificate and of any endorsements or attached papers shall
11 be plainly printed in light face type of a style in general
12 use, the size of which type shall be uniform and not less
13 than ten point with a lower case unspaced alphabet length not
14 less than 120 point. As used in this paragraph the term
15 "text" includes all printed matter except the name and
16 address of the society, name or title of the certificate, the
17 brief description, if any, and captions and subcaptions.
18 (5) The exceptions and reductions of indemnity shall be
19 set forth in the certificate. Except for those set forth in
20 this chapter, these exceptions and reductions shall, at the
21 society's option, either be included with the benefit
22 provision to which they apply or under an appropriate caption
23 such as "exceptions" or "exceptions and reductions." If an
24 exception or reduction specifically applies only to a
25 particular benefit of the certificate, a statement of the
26 exception or reduction shall be included with the benefit
27 provision to which it applies.
28 (6) Each such form, including riders and endorsements,
29 shall be identified by a form number in the lower left-hand
30 corner of the first page thereof.
19850H1962B2642 - 472 -
1 (7) It contains no provision purporting to make any
2 portion of the charter, rules, constitution or bylaws of the
3 society a part of the policy unless such portion is set forth
4 in full in the policy, except in the case of the
5 incorporation of, or reference to, a statement of rates or
6 classification of risks or short-rate table filed with the
7 commissioner.
8 (8) If the certificate is entitled or referred to as
9 "noncancelable," the noncancelable certificate is
10 automatically renewable until 60 years of age upon payment of
11 the required premiums by the insured.
12 (9) With respect to an unmarried child covered by the
13 certificate prior to the attainment of 19 years of age who is
14 incapable of self-sustaining employment by reason of mental
15 retardation or physical handicap, who became so incapable
16 prior to attainment of 19 years of age and who is chiefly
17 dependent upon the certificate holder for support and
18 maintenance, a certificate under which coverage of a
19 dependent of a certificate holder terminates at a specified
20 age shall not terminate while the certificate remains in
21 force and the dependent remains in such condition, if the
22 certificate holder has within 31 days of the dependent's
23 attainment of the limiting age submitted proof of his
24 incapacity. This paragraph does not require a society to
25 insure a mentally retarded or physically handicapped
26 dependent child where the certificate is underwritten on
27 evidence of insurability based on health factors set forth in
28 the application or where the dependent does not satisfy the
29 conditions of the certificate as to evidence of insurability
30 or other provisions of the certificate, satisfaction of which
19850H1962B2642 - 473 -
1 is required for the coverage to take effect; in any such
2 case, the terms of the certificate shall apply with regard to
3 the coverage or exclusion from coverage of the dependent.
4 (b) Nonresident members.--If any certificate is issued by a
5 society domiciled in this Commonwealth for delivery to a person
6 residing in another state, and if the official having
7 responsibility for the administration of the insurance laws of
8 the other state has advised the commissioner that such a
9 certificate is not subject to approval or disapproval by the
10 official, the commissioner may by ruling require that the
11 certificate meet the standards set forth in section 4541
12 (relating to approval of certificates) and this chapter.
13 § 4553. Standard contract provisions.
14 Except as provided in this chapter, each certificate
15 delivered or issued for delivery to any person in this
16 Commonwealth with respect to accident and health coverage and
17 coverage for permanent and total disability shall contain the
18 contract provisions specified in sections 4554 (relating to
19 entire contract and changes) through 4567 (relating to
20 conformity of provisions with state statutes) in the words in
21 which the same appear in this chapter. However, the society may,
22 at its option, substitute for one or more of such provisions
23 corresponding provisions of different wording approved by the
24 commissioner which are in each instance not less favorable in
25 any respect to the benefit member or the beneficiary. Such
26 provisions shall be preceded individually by the caption
27 appearing in this section or, at the option of the society, by
28 such appropriate individual or group captions or subcaptions as
29 the commissioner may approve.
30 § 4554. Entire contract and changes.
19850H1962B2642 - 474 -
1 There shall be a provision as follows:
2 Entire Contract; Changes: This certificate, including the
3 society's bylaws, the endorsements and the attached
4 papers, if any, constitutes the entire contract of
5 insurance. No change in this certificate shall be valid
6 until approved by an executive officer of the society and
7 unless such approval be endorsed hereon or attached
8 hereto. No agent has authority to change this certificate
9 or to waive any of its provisions.
10 § 4555. Time limits on certain defenses.
11 (a) Mandatory provision.--There shall be a provision as
12 follows:
13 Time Limit on Certain Defenses: After three years from
14 the date of issue of this certificate no misstatements,
15 except fraudulent misstatements, made by the applicant in
16 the application for such certificate shall be used to
17 void the certificate or to deny a claim for loss incurred
18 or disability (as defined in the certificate) commencing
19 after the expiration of such three-year period.
20 (b) Nonapplicability.--The certificate provision does not
21 affect any legal requirement for avoidance of a certificate or
22 denial of a claim during such initial three-year period, nor
23 limit the application of sections 4554 (relating to entire
24 contract and changes) through 4557 (relating to reinstatement)
25 and section 4558(a), (b) and (c) (relating to claim procedure)
26 in the event of misstatement with respect to age or occupation
27 or other insurance.
28 (c) Optional language for weekly payment situations.--
29 (1) In a certificate where the dues, premiums or other
30 required contributions are payable weekly, the words "if such
19850H1962B2642 - 475 -
1 application is made a part of the certificate" may be
2 inserted in the certificate provision between the word
3 "certificate" and the word "shall" immediately following.
4 (2) In certificates whereon the dues, premiums or the
5 required contributions are payable weekly, the words "or from
6 the date of any reinstatement thereof" may be inserted in the
7 certificate provision between the word "certificate" and the
8 word "shall" immediately following.
9 (d) Optional language where certificate member has power to
10 continue certificate.--A certificate which the benefit member
11 has the right to continue in force subject to its terms by the
12 timely payment of the dues, premium or other required
13 contribution until at least 50 years of age, or in the case of a
14 certificate issued after 44 years of age, for at least five
15 years from its date of issue, may contain in lieu of the
16 language in section 4558(a) (relating to claim procedure), the
17 following provision:
18 Incontestability Period: After this certificate has been
19 in force for a period of three years during the lifetime
20 of the benefit member (excluding any period during which
21 the benefit member is disabled), it shall become
22 incontestable as to the statements contained in the
23 application.
24 (e) Nondenial or reduction of certain claims.--There shall
25 be a provision as follows:
26 Nondenial or Reduction of Certain Claims: No claim for
27 loss incurred or disability (as defined in the
28 certificate) commencing after three years from the date
29 of issue of this certificate shall be reduced or denied
30 on the ground that a disease or physical condition not
19850H1962B2642 - 476 -
1 excluded from coverage by name or specific description
2 effective on the date of loss had existed prior to the
3 effective date of coverage of this certificate.
4 § 4556. Grace periods.
5 (a) Period established.--There shall be a provision as
6 follows:
7 Grace Period: There shall be a grace period of (insert a
8 number not less than "7" for weekly dues, premium or
9 other required contribution certificates, "10" for
10 monthly dues, premium or other required contribution
11 certificates and "31" for all other certificates) days
12 will be granted for the payment of each dues, premium or
13 other required contribution falling due after the first
14 dues, premium or other required contribution during which
15 grace period the certificate shall continue in force.
16 (b) Cancellation.--A certificate which contains a
17 cancellation provision may add, at the end of the provision,
18 "subject to the right of the benefit member to cancel in
19 accordance with the cancellation provision hereof."
20 (c) Reservation of right to refuse renewal.--A certificate
21 in which the society reserves the right to refuse any renewal
22 shall have, at the beginning of the contract provision set forth
23 in subsection (a), "unless not less than 30 days prior to the
24 dues, premium or other required contribution due date the
25 society has delivered to the benefit member or has mailed to his
26 last address as shown by the records of the society written
27 notice of its intention not to renew this certificate beyond the
28 period for which the dues, premium or other required
29 contribution has been accepted."
30 § 4557. Reinstatement.
19850H1962B2642 - 477 -
1 (a) Mandatory provision.--There shall be a provision as
2 follows:
3 Reinstatement: If any renewal dues, premium or other
4 required contribution is not paid within the time granted
5 the society for payment, a subsequent acceptance of dues,
6 premium or other required contribution by the society or
7 by any agent duly authorized by the society to accept
8 such dues, premium or other required contribution without
9 requiring in connection therewith an application for
10 reinstatement, shall reinstate the certificate: Provided,
11 however, That if the society or such agent requires an
12 application for reinstatement and issues a conditional
13 receipt for the dues, premium or other required
14 contribution tendered, the certificate will be reinstated
15 upon approval of such application by the society or,
16 lacking such approval, upon the 45th day following the
17 date of such conditional receipt unless the society has
18 previously notified the benefit member in writing of its
19 disapproval of such application. The reinstated
20 certificate shall cover only loss resulting from such
21 accidental injury as may be sustained after the date of
22 reinstatement and loss due to such sickness as may begin
23 more than ten days after such date. In all other respects
24 the benefit member and society shall have the same rights
25 thereunder as they had under the certificate immediately
26 before the due date of the defaulted dues, premium or
27 other required contribution subject to any provisions
28 endorsed hereon or attached hereto in connection with the
29 reinstatement. Any dues, premium or other required
30 contribution accepted in connection with a reinstatement
19850H1962B2642 - 478 -
1 shall be applied to a period for which the dues, premium
2 or other required contribution has not been previously
3 paid, but not to any period more than 60 days prior to
4 the date of reinstatement.
5 (b) Payments accepted.--The last sentence of the contract
6 provision set forth in subsection (a) may be omitted:
7 (1) from any certificate which the benefit member has
8 the right to continue in force subject to its terms by the
9 timely payment of the dues, premiums or other required
10 contributions until at least 50 years of age or, in the case
11 of a certificate issued after 44 years of age, for at least
12 five years from the date of its issue; or
13 (2) from any certificate on which the dues, premiums or
14 other required contributions are payable weekly.
15 § 4558. Claim procedure.
16 (a) Notice of claim.--There shall be a provision as follows:
17 Notice of Claim: Written notice of claim must be given to
18 the society within 20 days after the occurrence or
19 commencement of any loss covered by the certificate, or
20 as soon thereafter as is reasonably possible. Notice
21 given by or on behalf of the benefit member or the
22 beneficiary to the society at (insert the location of
23 such office as the society may designate for the purpose)
24 or to any authorized agent of the society, with
25 information sufficient to identify the benefit member,
26 shall be deemed notice to the society.
27 (b) Optional language for weekly payment insurance.--In a
28 certificate whereon the dues, premiums or other required
29 contributions are payable weekly, the first sentence of the
30 contract provisions set forth in subsection (a) may read:
19850H1962B2642 - 479 -
1 Written notice of claim must be given to the society
2 within 10 days of the commencement of any nonhospital
3 confining sickness covered by the certificate and within
4 20 days after the occurrence or commencement of any other
5 loss covered by the certificate, or as soon thereafter as
6 is reasonably possible.
7 (c) Language in loss of time benefit insurance.--In a
8 certificate providing a loss of time benefit which may be
9 payable for at least two years, a society may insert the
10 following between the first and second sentences of the
11 provision set forth in subsection (a):
12 Subject to the qualifications set forth below, if the
13 benefit member suffers loss of time on account of
14 disability for which indemnity may be payable for at
15 least two years, he shall, at least once in every six
16 months after having given notice of claim, give to the
17 society notice of continuance of said disability, except
18 in the event of legal incapacity. The period of six
19 months following any filing of proof by the benefit
20 member or any payment by the society on account of such
21 claim or any denial of liability in whole or in part by
22 the society shall be excluded in applying this provision.
23 Delay in the giving of such notice shall not impair the
24 benefit member's right to any indemnity which would
25 otherwise have accrued during the period of six months
26 preceding the date on which such notice is actually
27 given.
28 (d) Forms for claims.--There shall be a provision as
29 follows:
30 Claim Forms: The society, upon receipt of a notice claim,
19850H1962B2642 - 480 -
1 will furnish to the claimant such forms as are usually
2 furnished by it for filing proofs of loss. If such forms
3 are not furnished within 15 days after the giving of such
4 notice, the claimant shall be deemed to have complied
5 with the requirements of this certificate as to proof of
6 loss upon submitting, within the time fixed in the
7 certificate for filing proofs of loss, written proof
8 covering the occurrence, the character and the extent of
9 the loss for which claim is made.
10 (e) Proofs of loss.--There shall be a provision as follows:
11 Proofs of Loss: Written proof of loss must be furnished
12 to the society at its office in case of claim for loss
13 for which this certificate provides any periodic payment
14 contingent upon continuing loss within 90 days after the
15 termination of the period for which the society is liable
16 and in case of claim for any other loss within 90 days
17 after the date of such loss. Failure to furnish such
18 proof within the time required shall not invalidate or
19 reduce any claim if it was not reasonably possible to
20 give proof within such time, provided such proof is
21 furnished as soon as reasonably possible and in no event,
22 except in the absence of legal capacity, later than one
23 year from the time proof is otherwise required.
24 (f) Physical examinations and autopsy.--There shall be a
25 provision as follows:
26 Physical Examinations and Autopsy: The society at its own
27 expense shall have the right and opportunity to examine
28 the person of the benefit member when and as often as it
29 may reasonably require during the pendency of a claim
30 hereunder and to make an autopsy in case of death where
19850H1962B2642 - 481 -
1 it is not forbidden by law.
2 § 4559. Payment of claims.
3 (a) Mandatory provision.--There shall be a provision as
4 follows:
5 Payment of Claims: Indemnity for loss of life will be
6 payable in accordance with the beneficiary designation
7 and the provisions respecting such payment which may be
8 prescribed herein and effective at the time of payment.
9 If no such designation or provision is then effective,
10 such indemnity shall be payable to the estate of the
11 insured. Any other accrued indemnities unpaid at the
12 benefit member's death may, at the option of the society,
13 be paid either to such beneficiary or to such estate. All
14 other indemnities will be payable to the benefit member.
15 (b) Optional language.--The following provisions, or either
16 of them, may be included with the contract provision set forth
17 in subsection (a):
18 (1) If any indemnity of this certificate shall be
19 payable to the estate of the benefit member or to a benefit
20 member or beneficiary who is a minor or otherwise not
21 competent to give a valid release, the society may pay such
22 indemnity, up to an amount not exceeding $ (insert an amount
23 which shall not exceed $1,000), to any relative by blood or
24 connection by marriage of the benefit member or beneficiary
25 who is deemed by the society to be equitably entitled
26 thereto. Any payment made by the society in good faith
27 pursuant to this provision shall fully discharge the society
28 to the extent of such payment.
29 (2) Subject to any written direction of the benefit
30 member in the application or otherwise, all or a portion of
19850H1962B2642 - 482 -
1 any indemnities provided by this certificate on account of
2 hospital, nursing, medical or surgical services may, at the
3 society's option and, unless the benefit member requests
4 otherwise in writing, not later than the time of filing
5 proofs of such loss, be paid directly to the hospital or
6 person rendering such services; but it is not required that
7 the service be rendered by a particular hospital or person.
8 (c) Time of payment of claims.--There shall be a provision
9 as follows:
10 Time of Payment of Claims: Indemnities payable under this
11 certificate for any loss other than loss for which this
12 certificate provides any periodic payment will be paid
13 immediately upon receipt of due written proof of such
14 loss. Subject to due written proof of loss, all accrued
15 indemnities for loss for which this certificate provides
16 periodic payment will be paid (insert period for payment
17 which must not be less frequently than monthly) and any
18 balance remaining unpaid upon the termination of
19 liability will be paid immediately upon receipt of due
20 written proof.
21 § 4560. Legal actions.
22 There shall be a provision as follows:
23 Legal Actions: No action at law or in equity shall be
24 brought to recover on this certificate prior to the
25 expiration of 60 days after written proof of loss has
26 been furnished in accordance with the requirements of
27 this certificate. No such action shall be brought after
28 the expiration of three years after the time written
29 proof of loss is required to be furnished.
30 § 4561. Change of beneficiary.
19850H1962B2642 - 483 -
1 There shall be a provision as follows:
2 Change of Beneficiary: Unless the benefit member makes an
3 irrevocable designation of beneficiary, the right to
4 change of beneficiary is reserved to the benefit member
5 and the consent of the beneficiary or beneficiaries shall
6 not be requisite to surrender or assignment of this
7 certificate or to any change of beneficiary or
8 beneficiaries, or to any other changes in this
9 certificate. The first clause of this provision, relating
10 to the irrevocable designation of beneficiary, may be
11 omitted at the society's option.
12 § 4562. Change of occupation.
13 There shall be a provision as follows:
14 Change of Occupation: If the benefit member is injured or
15 contracts sickness after having changed his occupation to
16 one classified by the society as more hazardous than that
17 stated in this certificate or while doing for
18 compensation anything pertaining to an occupation so
19 classified, the society will pay only such portion of the
20 indemnities provided in this certificate as the dues,
21 premiums or other required contributions paid would have
22 purchased at the rates and within the limits fixed by the
23 society for such more hazardous occupation. If the
24 benefit member changes his occupation to one classified
25 by the society as less hazardous than that stated in this
26 certificate, the society, upon receipt of proof of such
27 change of occupation, will reduce the dues, premiums or
28 other required contributions accordingly, and will return
29 the excess pro rata unearned dues, premiums or other
30 required contributions from the date of change of
19850H1962B2642 - 484 -
1 occupation or from the certificate anniversary date
2 immediately preceding receipt of such proof, whichever is
3 the more recent. In applying this provision, the
4 classification of occupational risk and the dues,
5 premiums or other required contributions shall be such as
6 have been last filed by the society prior to the
7 occurrence of the loss for which the society is liable or
8 prior to date of proof of change in occupation with the
9 state official having supervision of insurance in the
10 state where the benefit member resided at the time this
11 certificate was issued; but if such filing was not
12 required, then the classification of occupational risk
13 and the dues, premiums or other required contributions
14 shall be those last made effective by the society in such
15 state prior to the occurrence of the loss or prior to the
16 date of proof of change in occupation.
17 § 4563. Conduct of insured.
18 (a) Misstatement of age.--There shall be a provision as
19 follows:
20 Misstatement of Age: If the age of the benefit member has
21 been misstated, all amounts payable under this
22 certificate shall be such as the dues, premiums or other
23 required contributions paid would have purchased at the
24 correct age.
25 (b) Nonpayment of premiums.--There shall be a provision as
26 follows:
27 Unpaid Dues, Premiums or Other Required Contributions:
28 Upon the payment of a claim under this certificate, any
29 dues, premiums or other required contributions then due
30 and unpaid or covered by any note or written order may be
19850H1962B2642 - 485 -
1 deducted therefrom.
2 (c) Illegal occupation.--There shall be a provision as
3 follows:
4 Illegal Occupation: The society shall not be liable for
5 any loss to which a contributing cause was the benefit
6 member's commission of or attempt to commit a felony, or
7 to which a contributing cause was the benefit member's
8 being engaged in an illegal occupation.
9 (d) Intoxicants and narcotics.--There shall be a provision
10 as follows:
11 Intoxicants and Narcotics: The society shall not be
12 liable for any loss sustained or contracted in
13 consequence of the benefit member's being intoxicated, or
14 under the influence of any narcotic unless administered
15 on the advice of a physician.
16 § 4564. Other insurance.
17 (a) Other insurance in same society.--There shall be a
18 provision as follows:
19 Other Insurance in This Society: If an accident or
20 sickness or accident and sickness certificate or
21 certificates previously issued by the society to the
22 benefit member be in force concurrently herewith, making
23 the aggregate indemnity for (insert type of coverage or
24 coverages) in excess of $ (insert maximum limit of
25 indemnity or indemnities), the excess insurance shall be
26 void and all dues, premiums or other required
27 contributions paid for such excess shall be returned to
28 the benefit member or to his estate or, in lieu thereof,
29 insurance effective at any one time on the benefit member
30 under a like certificate or certificates in this society
19850H1962B2642 - 486 -
1 is limited to the one such certificate elected by the
2 benefit member, his beneficiary or his estate, as the
3 case may be, and the society will return all dues,
4 premiums or other required contributions paid for all
5 other such certificates.
6 (b) Insurance with other benefit members.--There shall be a
7 provision as follows:
8 Insurance with Other Benefit Members: If there is other
9 valid coverage, not with this society, providing benefits
10 for the same loss on a provision of service basis or on
11 an expense incurred basis and of which this society has
12 not been given written notice prior to the occurrence or
13 commencement of loss, the only liability under any
14 expense incurred coverage of this certificate shall be
15 for such proportion of the loss of the amount which would
16 otherwise have been payable hereunder plus the total of
17 the like amounts under all such other valid coverages for
18 the same loss of which this society had notice bears to
19 the total like amounts under all valid coverages for such
20 loss, and for the return of such portion of the dues,
21 premiums or other required contributions paid as shall
22 exceed the pro rata portion for the amount so determined.
23 For the purpose of applying this provision when other
24 coverage is on a provision of service basis, the "like
25 amount" of such other coverage shall be taken as the
26 amount which the services rendered would have cost in the
27 absence of such coverage.
28 (c) Caption change for insurance with other benefit
29 members.--If the contract provision set forth in subsection (a)
30 is included in a certificate which also contains the contract
19850H1962B2642 - 487 -
1 provision set forth in subsection (e), there shall be added to
2 the caption of the contract provision set forth in subsection
3 (b) the phrase "... Expense Incurred Benefits."
4 (d) Definition of "other valid coverage" for insurance with
5 other benefit members.--The society may include in the contract
6 provision set forth in subsection (b) a definition of "other
7 valid coverage," approved as to form by the commissioner, which
8 shall be limited in subject matter to coverage provided by
9 organizations subject to regulation by insurance law or by
10 insurance authorities of this Commonwealth or any other state or
11 any province of Canada, and by hospital or medical service
12 organizations, and to any other coverage the inclusion of which
13 is approved by the commissioner. In the absence of such
14 definition, the term does not include group insurance or
15 coverage provided by hospital or medical service organizations
16 or by union welfare plans or employer or employee benefit
17 organizations. For the purpose of applying the provision set
18 forth in subsection (b) with respect to any benefit member, any
19 amount of benefit provided for the member pursuant to any
20 compulsory benefit statute, including any workmen's compensation
21 or employers' liability statute, whether provided by a
22 governmental agency or otherwise, shall be deemed "other valid
23 coverage" of which the society has had notice in applying; this
24 contract provision, in no event shall third party liability
25 coverage be included as "other valid coverage."
26 (e) Insurance with other societies.--There shall be a
27 provision as follows:
28 Insurance with Other Societies: If there is other valid
29 coverage, not with this society, providing benefits for
30 the same loss on other than an expense incurred basis and
19850H1962B2642 - 488 -
1 of which this society has not been given written notice
2 prior to the occurrence or commencement of loss, the only
3 liability for such benefits under this certificate shall
4 be for such proportion of the indemnities otherwise
5 provided hereunder for such loss as the like indemnities
6 of which the society had notice (including the
7 indemnities under this certificate) bear to the total
8 amount of all like indemnities for such loss, and for the
9 return of such portion of the dues, premiums or other
10 required contributions paid as shall exceed the pro rata
11 portion for the indemnities thus determined.
12 (f) Caption changes for insurance with other societies.--If
13 the contract provision set forth in subsection (e) is included
14 in a certificate which also contains the provision set forth in
15 subsection (b) there shall be added to the caption of the
16 foregoing provision the phrase "... other benefits."
17 (g) Definition of "other valid coverage" for insurance with
18 other societies.--The society may include in the contract
19 provision set forth in subsection (e) a definition of "other
20 valid coverage," approved as to form by the commissioner, which
21 shall be limited in subject matter to coverage provided by
22 organizations subject to regulation by insurance law or by
23 insurance authorities of this Commonwealth or any other state or
24 any province of Canada, and to any other coverage the inclusion
25 of which may be approved by the commissioner. In the absence of
26 such definition, the term does not include group insurance or
27 benefits provided by union welfare plans or by employer or
28 employee benefit organizations. For the purpose of applying the
29 contract provision set forth in subsection (e) with respect to
30 any benefit member, any amount of benefit provided for the
19850H1962B2642 - 489 -
1 insured pursuant to any compulsory benefit statute including any
2 workmen's compensation or employers' liability statute, whether
3 provided by a governmental agency or otherwise, shall be deemed
4 "other valid coverage" of which the society has had notice; in
5 applying this contract provision, in no event shall third party
6 liability coverage be included as "other valid coverage."
7 § 4565. Relation of earnings to insurance.
8 (a) Reduction of payments to rates with earnings.--If
9 permitted by subsection (b), there shall be a provision as
10 follows:
11 Relation of Earnings to Insurance: If the total monthly
12 amount of loss of time benefits promised for the same
13 loss under all valid loss of time coverage upon the
14 benefit member, whether payable on a weekly or monthly
15 basis, shall exceed the monthly earnings for the period
16 of two years immediately preceding a disability for which
17 claim is made, whichever is the greater, the society will
18 be liable only for such proportionate amount of such
19 benefits under this certificate as the amount of such
20 monthly earnings or such average monthly earnings of the
21 benefit member bears to the total amount of monthly
22 benefits for the same loss under all such coverage upon
23 the benefit member at the time such disability commences
24 and for the return of such part of the dues, premiums or
25 other required contributions paid during such two years
26 as shall exceed the pro rata amount of the dues, premiums
27 or other required contributions for the benefits actually
28 paid hereunder; but this shall not operate to reduce the
29 total monthly amount of benefits payable under all such
30 coverage upon the benefit member below the sum of $200 or
19850H1962B2642 - 490 -
1 the sum of the monthly benefits specified in such
2 coverages, whichever is the lesser, nor shall it operate
3 to reduce benefits other than those payable for loss of
4 time.
5 (b) Limited use of provision.--The contract provision set
6 forth in subsection (a) shall be inserted only in a certificate
7 which the benefit member has the right to continue in force
8 subject to its terms by the timely payment of dues, premiums or
9 other required contributions until at least 50 years of age or,
10 in the case of a certificate issued after 44 years of age, for
11 at least five years from its date of issue.
12 (c) Definition of "valid loss of time coverage".--The
13 society may include in the contract provision set forth in
14 subsection (a), a definition of "valid loss of time coverage,"
15 approved as to form by the commissioner, which shall be limited
16 in subject matter to coverage provided by governmental agencies
17 or by organizations subject to regulation by insurance law or by
18 insurance authorities of this Commonwealth or any other state or
19 any province of Canada, or to any other coverage, the inclusion
20 of which may be approved by the commissioner, or any combination
21 of such coverages. In the absence of such definition, the term
22 does not include any coverage provided for the member pursuant
23 to any compulsory benefit statute, including any workmen's
24 compensation or employers' liability statute, or benefits
25 provided by union welfare plans or by employer or employee
26 benefit organizations.
27 § 4566. Cancellation.
28 There shall be a provision as follows:
29 Cancellation: The society may cancel this certificate at
30 any time by written notice delivered to the benefit
19850H1962B2642 - 491 -
1 member or mailed to his last address as shown by the
2 records of the society, stating when, not less than 30
3 days thereafter, such cancellation shall be effective;
4 and after the certificate has been continued beyond its
5 original term, the benefit member may cancel this
6 certificate at any time by written notice delivered or
7 mailed to the society, effective upon receipt or on such
8 later date as may be specified in such notice. In the
9 event of cancellation, the society will return promptly
10 the unearned portion of any dues, premiums or other
11 required contributions paid. If the benefit member
12 cancels, the unearned dues, premiums or other required
13 contributions shall be computed by the use of the short
14 rate table last filed with the state official having
15 supervision of insurance in the state where the benefit
16 member resided when the certificate was issued. If the
17 society cancels, the earned dues, premiums or other
18 required contributions shall be computed pro rata.
19 Cancellation shall be without prejudice to any claim
20 originating prior to the effective date of cancellation.
21 § 4567. Conformity of provisions with state statutes.
22 There shall be a provision as follows:
23 Conformity with State Statutes: Any provision of this
24 certificate which, on its effective date, is in conflict
25 with the statutes of the state in which the benefit
26 member resides on such date, is hereby amended to conform
27 to the minimum requirements of such statutes.
28 § 4568. Inapplicable provisions.
29 (a) Modification for type of coverage.--If any contract
30 provision of this chapter is in whole or in part inapplicable to
19850H1962B2642 - 492 -
1 or inconsistent with the coverage provided by a particular form
2 of certificate, the society, with the approval of the
3 commissioner, shall omit from the certificate any inapplicable
4 provision and shall modify any inconsistent provision in such
5 manner as to make the provision as contained in the certificate
6 consistent with the coverage provided by the certificate.
7 (b) Power of commissioner.--Where the commissioner deems
8 inapplicable, either in part or in their entirety, the contract
9 provisions of this chapter, he may prescribe the portions or
10 summary thereof of the contract to be printed on the certificate
11 issued to the member.
12 § 4569. Composition and construction of certificates.
13 (a) Order of provisions.--The contract provisions prescribed
14 by this chapter or any corresponding provisions which are used
15 in lieu thereof in accordance therewith shall be printed in the
16 consecutive order of the provisions therein or, at the option of
17 the society, any such provision may appear as a unit in any part
18 of the certificate, with other provisions to which it may be
19 logically related, provided the resulting certificate shall not
20 be in whole or in part unintelligible, ambiguous or misleading.
21 (b) Third-party ownership.--The term "benefit member," as
22 used in this chapter, shall not be construed as preventing a
23 person other than the benefit member with a proper insurable
24 interest from making application for and owning a certificate
25 covering the benefit member or from being entitled under such a
26 certificate to any indemnities, benefits and rights provided
27 therein.
28 SUBCHAPTER F
29 LICENSURE
30 Sec.
19850H1962B2642 - 493 -
1 4571. Annual license for societies.
2 4572. Fees.
3 4573. Foreign societies.
4 4574. Injunction, liquidation or receivership of domestic
5 societies.
6 4575. Suspension, revocation or refusal of license to foreign
7 societies.
8 4576. Application for injunction.
9 4577. Licensure of fraternal insurance agents.
10 § 4571. Annual license for societies.
11 The authority of the societies shall be renewed annually, on
12 or before April 1.
13 § 4572. Fees.
14 The Insurance Commissioner shall charge and collect fees
15 under section 613-A(3) of the act of April 9, 1929 (P.L.177,
16 No.175), known as The Administrative Code of 1929. All agent's
17 license fees for each domestic or foreign society, for life or
18 accident and health lines, shall be paid in full at time of
19 issuance of license and shall not be apportioned pro rata over
20 the initial license period. All fees collected shall be paid
21 daily into the State Treasury.
22 § 4573. Foreign societies.
23 (a) License required.--A foreign or alien society shall not
24 transact business in this Commonwealth without a license issued
25 by the commissioner. Any such society may be licensed to
26 transact business in this Commonwealth upon filing with the
27 commissioner:
28 (1) A certified copy of its charter or articles of
29 incorporation.
30 (2) A copy of its constitution and bylaws, certified by
19850H1962B2642 - 494 -
1 its secretary or corresponding officer.
2 (3) A statement of its business under oath of its
3 president and secretary or corresponding officers in a form
4 prescribed by the commissioner, duly verified by an
5 examination satisfactory to the commissioner, made by the
6 supervising insurance official of its home state or other
7 state, province or country.
8 (4) A certificate from the proper official of its home
9 state, province or country that the society is legally
10 incorporated and licensed to transact business therein.
11 (5) Copies of its certificate forms.
12 (6) Such other information as the commissioner believes
13 necessary.
14 (7) Proof that its assets are invested in accordance
15 with this chapter.
16 (b) Qualifications.--Any foreign or alien society desiring
17 authority to transact business in this Commonwealth shall have
18 the qualifications required of domestic societies organized
19 under this chapter.
20 § 4574. Injunction, liquidation or receivership of domestic
21 societies.
22 (a) Findings and notification.--When the commissioner upon
23 investigation finds that a domestic society:
24 (1) has exceeded its powers;
25 (2) has failed to comply with any provision of this
26 chapter;
27 (3) is not fulfilling its contracts in good faith;
28 (4) has a membership of less than 400 after an existence
29 of one year or more; or
30 (5) is conducting business fraudulently or in a manner
19850H1962B2642 - 495 -
1 hazardous to its members, creditors, the public or the
2 business;
3 he shall notify the society of the deficiencies. He shall
4 immediately issue a written notice to the society requiring that
5 any such deficiencies be corrected. After this notice the
6 society shall have a 30-day period in which to comply with the
7 commissioner's request. If the society fails to comply, the
8 commissioner shall notify the society of his findings of
9 noncompliance and require the society to show cause, at a
10 hearing on a date named, why it should not be enjoined from
11 carrying on any business until the violation complained of has
12 been corrected, or why an action in quo warranto should not be
13 commenced against the society.
14 (b) Presentation to Attorney General.--If on the hearing
15 date the society does not present sufficient reasons why it
16 should not be so enjoined or why such action should not be
17 commenced, the commissioner may present the facts relating
18 thereto to the Attorney General who shall, if he deems the
19 circumstances warrant, commence an action to enjoin the society
20 from transacting business or in quo warranto. An action under
21 this section shall not be recognized in any court unless
22 commenced by the Attorney General upon request of the
23 commissioner.
24 (c) Hearing.--If after a full hearing, after adequate notice
25 to the society, it appears that the society should be so
26 enjoined or liquidated or a receiver appointed, the court shall
27 enter the necessary order.
28 (d) Prerequisites for lifting injunction.--A society so
29 enjoined shall not have the authority to do business until all
30 of the following have occurred:
19850H1962B2642 - 496 -
1 (1) The commissioner finds that the violation complained
2 of has been corrected.
3 (2) The costs of such action are paid by the society, if
4 the court finds that the society was in default as charged.
5 (3) The court dissolves its injunction.
6 (4) The commissioner reinstates the certificate of
7 authority.
8 (e) Court order for liquidation.--If the court orders the
9 society liquidated, it shall be enjoined from carrying on any
10 further business. The receiver of the society shall proceed
11 immediately to take possession of the books, papers, money and
12 other assets of the society and, under the direction of the
13 court, proceed immediately to close the affairs of the society
14 and to distribute its funds to those entitled thereto. Whenever
15 a receiver is to be appointed for a domestic society, the court
16 shall appoint the commissioner as receiver.
17 (f) Applicability to voluntary discontinuance.--The
18 provisions of this section relating to hearing by the
19 commissioner, action by the Attorney General at the request of
20 the commissioner, hearing by the court, injunction and
21 receivership shall apply to a society which voluntarily
22 determines to discontinue business.
23 § 4575. Suspension, revocation or refusal of license to foreign
24 societies.
25 (a) Findings and notification.--When the commissioner upon
26 investigation finds that a foreign or alien society transacting
27 or applying to transact business in this Commonwealth:
28 (1) has exceeded its powers;
29 (2) has failed to comply with any of the provisions of
30 this chapter;
19850H1962B2642 - 497 -
1 (3) is not fulfilling its contracts in good faith; or
2 (4) is conducting its business fraudulently or in a
3 manner hazardous to its members or creditors or the public;
4 he shall notify the society of the deficiencies. He shall
5 immediately issue a written notice to the society requiring that
6 any such deficiencies be corrected. After the notice the society
7 shall have a 30-day period in which to comply with the
8 commissioner's request. If the society fails to comply, the
9 commissioner shall notify the society of his findings of
10 noncompliance and require the society to show cause, at a
11 hearing on a date named, why its license should not be
12 suspended, revoked or refused. If on the hearing date the
13 society does not present good and sufficient reason why the
14 action proposed by the commissioner should not be taken, he may
15 suspend or refuse the license of the society to do business in
16 this Commonwealth until satisfactory evidence is furnished to
17 him that the suspension or refusal should be withdrawn or he may
18 revoke the authority of the society to do business in this
19 Commonwealth.
20 (b) Continuation of contracts.--This section does not
21 prevent any such society from continuing in good faith all
22 contracts made in this Commonwealth during the time the society
23 was legally authorized to transact business.
24 § 4576. Application for injunction.
25 An application or petition for injunction with respect to any
26 regulatory law administered by the commissioner against any
27 domestic, foreign or alien society, or branch thereof, shall not
28 be recognized in any court unless made by the Attorney General
29 upon request of the commissioner.
30 § 4577. Licensure of fraternal insurance agents.
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1 (a) Licensure requirement.--Agents of societies shall be
2 licensed in accordance with this section.
3 (b) Payment of commissions.--A society doing business in
4 this Commonwealth shall not pay any commission or other
5 compensation to any person for any services in obtaining in this
6 Commonwealth any new contract of life, accident or health
7 insurance, or any new annuity contract, except to a licensed
8 fraternal insurance agent of the society.
9 (c) Issuance of license.--The commissioner may issue a
10 license to any person who has paid the annual license fee and
11 who has complied with the requirements of this section,
12 authorizing the licensee to act as a fraternal insurance agent
13 on behalf of any society named in the license which is
14 authorized to do business in this Commonwealth.
15 (d) Supporting documents.--A fraternal insurance agent's
16 license shall not be issued until there is on file in the office
17 of the commissioner the following documents:
18 (1) A written application by the prospective licensee,
19 in such form or forms and containing such information as the
20 commissioner may prescribe.
21 (2) A certificate by the society to be named in the
22 license, stating that the society has satisfied itself that
23 the named applicant is trustworthy and competent to act as
24 its fraternal insurance agent and that the society will
25 appoint the applicant to act as its agent if the license is
26 issued by the commissioner. This certificate shall be
27 executed and acknowledged by an officer or managing agent of
28 the society.
29 (e) Types of licenses.--Except as otherwise provided in this
30 section, fraternal insurance agents shall be licensed as life or
19850H1962B2642 - 499 -
1 accident and health agents, or both, except that the examination
2 requirements of such provisions shall not apply to:
3 (1) Any fraternal insurance agent who was in the service
4 of a society on January 29, 1978.
5 (2) A fraternal insurance agent who, in the preceding
6 calendar year, has solicited and procured life insurance
7 contracts on behalf of any society in an amount of insurance
8 not in excess of $100,000 or, in the case of any other kinds
9 of insurance which the society might write, on the persons of
10 not more than 25 individuals and who has received or will
11 receive a commission or compensation therefor.
12 (f) Denial of license.--The commissioner may refuse to issue
13 or renew any fraternal insurance agent's license if in his
14 judgment the proposed licensee is not trustworthy and competent
15 to act as such an agent, or has given cause for revocation or
16 suspension of the license, or has failed to comply with any
17 prerequisite for the issuance or renewal of the license.
18 (g) License terms.--The term, expiration, renewal
19 procedures, termination notice requirements and the causes for
20 revocation or suspension of the license shall be as contained in
21 Chapter 11 (relating to agents and brokers) with respect to
22 licenses of life, accident and health agents, except as
23 inconsistent with this section.
24 (h) Definition.--As used in this section the term "fraternal
25 insurance agent" means any authorized or acknowledged agent or
26 representative of a society who acts as such in the
27 solicitation, negotiation or procurement or making of a life
28 insurance, accident and health insurance or annuity contract.
29 The term does not include:
30 (1) Any regular salaried officer or employee of a
19850H1962B2642 - 500 -
1 licensed society whose services are devoted substantially to
2 activities other than the solicitation of insurance
3 contracts, and who receives for the solicitation of such
4 contracts no commission or other compensation directly
5 dependent upon the amount of business obtained.
6 (2) Any member of a society whose solicitation or
7 negotiation of insurance contracts is incidental to securing
8 new members for his society and whose only remuneration
9 consists of prizes in the form of merchandise or payments of
10 nominal amounts.
11 SUBCHAPTER G
12 REGULATION OF OPERATIONS
13 Sec.
14 4581. Funds.
15 4582. Investments.
16 4583. Report of financial condition.
17 4584. Determination of reserves.
18 4585. Deferred payments as liability.
19 4586. Certification of valuation.
20 4587. Valuation standards.
21 4588. Excess reserves.
22 4589. Examination of societies.
23 4590. Misrepresentations.
24 4591. Discrimination and rebates.
25 4592. Penalties.
26 § 4581. Funds.
27 (a) Assets of society.--All assets shall be held, invested
28 and disbursed for the use and benefit of the society, and a
29 member or beneficiary shall not have or acquire individual
30 rights therein or become entitled to any apportionment or the
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1 surrender of any part thereof, except as provided in the
2 contract.
3 (b) Use of funds.--A society may create, maintain, invest,
4 disburse and apply any special funds necessary to carry out any
5 purpose permitted by the bylaws of the society.
6 (c) Statement of purposes and proportions of payments.--
7 Every society, the admitted assets of which are less than the
8 sum of its accrued liabilities and reserves under all of its
9 certificates when valued according to standards required for
10 life insurance companies for certificates issued after January
11 29, 1979, shall, in every provision of the bylaws of the society
12 for payments by members of the society, distinctly state the
13 purpose of the same and the proportion thereof which may be used
14 for expenses. The money collected for mortuary or disability
15 purposes or the net accretions thereto shall not be used for
16 expenses.
17 § 4582. Investments.
18 (a) General rule.--A society shall invest its funds only in
19 the investments authorized by this title for the investment of
20 assets of life insurance companies. Any foreign or alien society
21 permitted or seeking to do business in this Commonwealth which
22 invests its funds in accordance with the law of the state,
23 province or country in which it is incorporated is deemed to
24 meet the requirements of this section for the investment of
25 funds.
26 (b) Certain real estate.--In addition to the investment of
27 assets as prescribed under subsection (a), a fraternal benefit
28 society may purchase, receive, hold and convey real estate or
29 any interest therein for the purpose of maintenance or
30 construction of camps or recreational areas with necessary
19850H1962B2642 - 502 -
1 facilities for all its members. Such assets shall be shown on
2 the annual statement at cost in the year acquired and may not
3 exceed 5% of other admitted assets of the society.
4 § 4583. Report of financial condition.
5 (a) Requirement.--Every society transacting business in this
6 Commonwealth shall annually, on or before March 1, unless for
7 cause shown the time is extended by the commissioner, file with
8 the commissioner a true statement of its financial condition,
9 transactions and affairs for the preceding calendar year and pay
10 the applicable fee. The statement shall be in general form and
11 content as approved by the National Association of Insurance
12 Commissioners for fraternal benefit societies and as
13 supplemented by additional information as required by the
14 commissioner.
15 (b) Synopsis of report to members.--A synopsis of its annual
16 statement providing an explanation of the facts concerning the
17 condition of the society disclosed in the statement shall be
18 printed and mailed to each benefit member of the society not
19 later than June 1 of each year, or the synopsis may instead be
20 published in the society's official publication.
21 (c) Report of valuation of certificates.--As a part of the
22 annual statement each society shall, on or before March 1, file
23 with the commissioner a valuation of its certificates in force
24 at the end of the preceding calendar year. The commissioner may
25 for cause shown extend the time for filing the valuation to not
26 later than May 1. The report of valuation shall show as reserve
27 liabilities the difference between the present midyear value of
28 the promised benefits provided in the certificates of the
29 society in force and the present midyear value of the future net
30 premiums as are actually collected, not including therein any
19850H1962B2642 - 503 -
1 value for the right to make extra assessments or any amount by
2 which the present midyear value of future net premiums exceeds
3 the present midyear value of promised benefits on individual
4 certificates. At the option of the society the valuation may
5 instead show the net tabular value. The net tabular value as to
6 certificates issued prior to January 29, 1979, shall be
7 determined in accordance with the law applicable prior to
8 January 29, 1978, and as to certificates issued on or after
9 January 29, 1979, shall not be less than the reserves determined
10 according to the commissioners' reserve valuation method under
11 section 4584 (relating to determination of reserves). If the
12 premium charged is less than the tabular net premium according
13 to the basis of valuation used, an additional reserve equal to
14 the present value of the deficiency in such premiums shall be
15 maintained as a liability. The reserve liabilities shall be
16 properly adjusted if the midyear or tabular values are not
17 appropriate.
18 (d) Penalty.--A society which neglects to file the annual
19 statement in the form and within the time provided by this
20 section shall forfeit $100 for each day during which such
21 neglect continues and, upon notice by the commissioner to that
22 effect, its authority to do business in this Commonwealth shall
23 cease while such default continues.
24 § 4584. Determination of reserves.
25 (a) Uniform life insurance and endowment benefits.--Reserves
26 according to the commissioner's reserve valuation method for the
27 life insurance and endowment benefits of certificates providing
28 for a uniform amount of insurance and requiring the payment of
29 uniform premiums, shall be the excess, if any, of the present
30 value, at the date of valuation, of the future guaranteed
19850H1962B2642 - 504 -
1 benefits provided for by such certificates, over the then
2 present value of any future modified net premiums therefor. The
3 modified net premiums for any such certificate shall be such a
4 uniform percentage of the respective contract premiums for such
5 benefits that the present value, at the date of issue of the
6 certificate, of all such modified net premiums shall be equal to
7 the sum of the then present value of such benefits provided for
8 by the certificate and the excess of paragraph (1) over
9 paragraph (2) as follows:
10 (1) A net level premium equal to the present value, at
11 the date of issue, of such benefits provided for after the
12 first certificate year, divided by the present value, at the
13 date of issue, of an annuity of one a year payable on the
14 first and each subsequent anniversary of such certificate on
15 which a premium falls due; provided however, that this net
16 level annual premium shall not exceed the net level annual
17 premium on the 19-year premium whole life plan for insurance
18 of the same amount at an age one year higher than the age at
19 issue of the certificate.
20 (2) A net one year term premium for such benefits
21 provided for in the first certificate year.
22 (b) Other benefits.--Reserves according to the
23 commissioners' reserve valuation method for:
24 (1) life insurance benefits for varying amounts of
25 benefits or requiring the payment of varying premiums;
26 (2) annuity and pure endowment benefits;
27 (3) disability and accidental death benefits in all
28 certificates and contracts; and
29 (4) all other benefits except life insurance and
30 endowment benefits;
19850H1962B2642 - 505 -
1 shall be calculated by a method consistent with the principles
2 of this section.
3 § 4585. Deferred payments as liability.
4 The present value of deferred payments due under incurred
5 claims or matured certificates shall be deemed a liability of
6 the society and shall be computed upon mortality and interest
7 standards prescribed in sections 4586 (relating to certification
8 of valuation) and 4587 (relating to valuation standards).
9 § 4586. Certification of valuation.
10 The valuation and underlying data shall be certified by a
11 competent actuary or, at the expense of the society, verified by
12 the actuary of the commissioner of insurance of the state of
13 domicile of the society.
14 § 4587. Valuation standards.
15 (a) Valuation for earlier certificates.--The minimum
16 standards of valuation for certificates issued prior to January
17 29, 1979, shall be those provided by the law applicable
18 immediately prior to January 29, 1978, but not lower than the
19 standards used in the calculating of rates for such
20 certificates.
21 (b) Valuation for certificates after January 29, 1979.--The
22 minimum standard of valuation for certificates issued after
23 January 29, 1979, shall be 3.5% interest and the following
24 tables:
25 (1) For certificates of life insurance, the American Men
26 Ultimate Table of Mortality, with Bowerman's or Davis'
27 Extension thereof, or with the consent of the commissioner,
28 the Commissioners 1941 Standard Ordinary Mortality Table, the
29 Commissioners 1941 Standard Industrial Mortality Table or the
30 Commissioners 1958 Standard Ordinary Mortality Table, using
19850H1962B2642 - 506 -
1 actual age of the insured for male risks and an age not more
2 than three years younger than the actual age of the insured
3 for female risks.
4 (2) For annuity and pure endowment certificates,
5 excluding any disability and accidental death benefits in
6 such certificates, the 1937 Standard Annuity Mortality Table
7 or the Annuity Mortality Table for 1949, Ultimate, or any
8 modification of either of these tables approved by the
9 commissioner.
10 (3) For total and permanent disability benefits in or
11 supplementary to life insurance certificates, Hunter's
12 Disability Table, or the Class III Disability Table (1926)
13 modified to conform to the contractual waiting period, or the
14 tables of Period 2 disablement rates and the 1930 to 1950
15 termination rates of the 1952 Disability Study of the Society
16 of Actuaries with due regard to the type of benefit. Any such
17 table shall, for active lives, be combined with a mortality
18 table permitted for calculating the reserves for life
19 insurance certificates.
20 (4) For accidental death benefits in or supplementary to
21 life insurance certificates, the Inter-Company Double
22 Indemnity Mortality Table or the 1959 Accidental Death
23 Benefits Table. Either table shall be combined with a
24 mortality table permitted for calculating the reserves for
25 life insurance certificates.
26 (5) For noncancelable accident and health benefits, the
27 Class III Disability Table (1926) with conference
28 modifications or, with the consent of the commissioner,
29 tables based upon the society's own experience.
30 (c) Applicability of life insurance standards.--Any society
19850H1962B2642 - 507 -
1 may value its certificates in accordance with valuation
2 standards authorized under this table for the valuation of
3 policies issued by life insurance companies.
4 (d) Standards prescribed by commissioner.--The commissioner
5 may accept other standards for valuation if he finds that the
6 reserves produced thereby will not be less in the aggregate than
7 reserves computed in accordance with the minimum valuation
8 standard prescribed under subsection (a), (b) or (c). The
9 commissioner may vary the standards of mortality applicable to
10 all certificates of insurance on substandard lives or other
11 especially hazardous lives by any society authorized to do
12 business in this Commonwealth. Whenever the mortality experience
13 under all certificates valued on the same mortality table is in
14 excess of the expected mortality according to such table for a
15 period of three consecutive years, the commissioner may require
16 additional reserves when deemed necessary on account of such
17 certificates.
18 § 4588. Excess reserves.
19 Any society, with the consent of the commissioner of
20 insurance of the state of domicile of the society and under any
21 conditions he imposes, may establish and maintain reserves on
22 its certificates in excess of the reserves required thereunder,
23 but the contractual rights of any insured member shall not be
24 affected thereby.
25 § 4589. Examination of societies.
26 (a) Domestic societies.--The commissioner may visit and
27 examine into the affairs of any domestic society, and he shall
28 make such examination at least once in every four years. He
29 shall have free access to all books, papers and documents that
30 relate to the business of the society. The minutes of the
19850H1962B2642 - 508 -
1 proceedings of the supreme legislative or governing body and of
2 the board of directors or corresponding body of a society shall
3 be in the English language. In making the examination, the
4 commissioner may examine the officers, agents and employees or
5 other persons under oath in relation to the affairs,
6 transactions and condition of the society. A summary of the
7 report of the commissioner, and such recommendations or
8 statements of the commissioner as may accompany the report,
9 shall be read at the first meeting of the board of directors or
10 corresponding body of the society following the receipt thereof
11 and, if directed so to do by the commissioner, shall also be
12 read at the first meeting of the supreme legislative or
13 governing body of the society following receipt. A copy of the
14 report, recommendations and statements of the commissioner shall
15 be furnished by the society to each member of the board of
16 directors or other governing body. The expense of each
17 examination and of each valuation, including compensation and
18 actual expense of examiners, shall be paid by the society
19 examined or whose certificates are valued, upon statements
20 furnished by the commissioner.
21 (b) Foreign and alien societies.--The commissioner may
22 examine any foreign or alien society transacting or applying for
23 admission to transact business in this Commonwealth. He shall
24 have free access to all books, papers and documents that relate
25 to the business of the society. He may accept, in lieu of such
26 examination, the examination of the commissioner insurance of
27 the state, province or country where the society is organized.
28 The compensation and actual expenses of the examiners making any
29 examination or general or special valuation shall be paid by the
30 society examined or by the society whose certificate obligations
19850H1962B2642 - 509 -
1 have been valued, upon statements furnished by the commissioner.
2 (c) Restrictions on publications.--The commissioner shall
3 not make public or permit to become public any financial
4 statement, report or finding affecting the status, standing or
5 rights of any society, until a copy thereof is served upon the
6 society at its principal office and the society is afforded a
7 reasonable opportunity to comment on the material and to make
8 such showing in connection therewith as it may desire.
9 (d) Objections.--Societies which have been examined by the
10 commissioner have the privilege of objecting to the report of
11 examination within 30 days after reception of the report. If any
12 objection is made, the commissioner will grant a hearing to the
13 society before making the report available for public
14 inspection.
15 § 4590. Misrepresentations.
16 (a) Offense.--A person shall not cause or permit to be made,
17 issued or circulated in any form:
18 (1) Any misrepresentation or false or misleading
19 statement concerning the terms, benefits or advantages of any
20 fraternal insurance contract now issued or to be issued in
21 this Commonwealth, or the financial condition of any society.
22 (2) Any false or misleading estimate or statement
23 concerning the dividends or shares of surplus paid or to be
24 paid by any society on any insurance contract.
25 (3) Any incomplete comparison of an insurance contract
26 of one society with an insurance contract of another society
27 or insurer for the purpose of inducing the lapse, forfeiture
28 or surrender of any insurance contract. A comparison of
29 insurance contracts is incomplete if:
30 (i) it does not compare in detail:
19850H1962B2642 - 510 -
1 (A) the gross rates, and the gross rates less
2 any dividend or other reduction allowed at the date
3 of the comparison; or
4 (B) any increase in cash values, and all the
5 benefits provided by each contract for the possible
6 duration thereof as determined by the life expectancy
7 of the insured; or
8 (ii) it omits from consideration:
9 (A) any benefit or value provided in the
10 contract;
11 (B) any differences as to amount or period of
12 rates; or
13 (C) any differences in limitations or conditions
14 or provisions which directly or indirectly affect the
15 benefits.
16 In any determination of the incompleteness or misleading
17 character of any comparison or statement, it shall be
18 presumed that the insured had no knowledge of any of the
19 contents of the contract involved.
20 (b) Penalty.--Any person who violates any provision of this
21 section or knowingly receives any compensation or commission by
22 or in consequence of such violation, commits a misdemeanor of
23 the third degree and, upon conviction, shall be sentenced to pay
24 a fine of not less than $100 or to imprisonment for a term of
25 not less than 30 days or both. The violator shall in addition be
26 liable for a civil penalty in the amount of three times the sum
27 received by the violator as compensation or commission, which
28 penalty may be sued for and recovered by any person or society
29 aggrieved for his or its own use and benefit.
30 § 4591. Discrimination and rebates.
19850H1962B2642 - 511 -
1 (a) Discrimination.--A society doing business in this
2 Commonwealth shall not make or permit any unfair discrimination
3 between benefit members, spouses or dependents of the same class
4 and equal expectation of life in the premiums charged for
5 certificates of insurance, in the dividends or other benefits
6 payable thereon or in any other of the terms and conditions of
7 the contracts it makes.
8 (b) Rebates.--A society, agent or solicitor shall not
9 directly or indirectly offer, promise, allow, give, set off or
10 pay any valuable consideration or inducement to or for insurance
11 on any risk authorized to be taken by the society, which is not
12 specified in the certificate. A member shall not receive or
13 accept, directly or indirectly, any rebate, favor or advantage,
14 share in the dividends or other benefits or any valuable
15 consideration or inducement not specified in the contract of
16 insurance.
17 § 4592. Penalties.
18 (a) False statements.--A person shall not willfully make a
19 false or fraudulent statement in or relating to an application
20 for membership or for the purpose of obtaining money from or a
21 benefit in any society.
22 (b) Solicitation by unlicensed society.--Any person who
23 solicits membership for or in any manner assists in procuring
24 membership in any society not licensed to do business in this
25 Commonwealth commits a summary offense and, upon conviction,
26 shall be fined not less than $500 nor more than $1,000.
27 (c) Other criminal penalties.--Any person guilty of a
28 willful violation of, or neglect or refusal to comply with this
29 chapter for which a penalty is not otherwise prescribed, commits
30 a misdemeanor of the third degree and, upon conviction, shall be
19850H1962B2642 - 512 -
1 sentenced to pay a fine not exceeding $500.
2 (d) Civil penalties.--Upon satisfactory evidence of a
3 violation of this chapter, the commissioner may, in lieu of
4 seeking criminal prosecution, suspend, revoke or refuse to renew
5 the license of the offending party or impose a civil penalty of
6 not more than $1,000 for each violation.
7 CHAPTER 47
8 MUTUAL COMPANIES
9 Sec.
10 4701. Definition.
11 4702. Licensing of foreign or alien companies.
12 4703. Investment of assets.
13 4704. Investments in real estate.
14 4705. Policy provisions.
15 4706. Countersigning and delivery of policies.
16 4707. Premiums.
17 4708. Reserves.
18 4709. Assessments.
19 4710. Loans to companies.
20 4711. Surplus.
21 § 4701. Definition.
22 As used in this chapter the term "mutual company" means a
23 mutual insurance company, other than a mutual life insurance
24 company.
25 § 4702. Licensing of foreign or alien companies.
26 Any foreign mutual company authorized to transact the
27 business of insurance on the mutual plan may, on application,
28 obtain authority to transact the kinds of insurance authorized
29 by its charter or articles of association, subject to its
30 compliance with the provisions and requirements of this title
19850H1962B2642 - 513 -
1 applicable to mutual companies transacting such insurance. Any
2 alien mutual insurance company desiring such authority shall
3 make and maintain the deposit required of alien stock insurance
4 companies transacting the same kind of insurance. Such authority
5 shall be subject to all the provisions of law relating to
6 information to and examinations by the commissioner, annual
7 reports, taxes and the renewal of certificates of authority
8 applicable to stock insurance companies transacting the same
9 kinds of insurance, except as otherwise provided in this
10 chapter.
11 § 4703. Investment of assets.
12 A domestic mutual company shall not invest any of its assets
13 except in accordance with this title as it relates to the
14 investment of the capital and surplus of domestic stock
15 insurance companies authorized to transact the same class or
16 classes of insurance, and in accordance with the following
17 provisions:
18 (1) A mutual company that writes assessable policies
19 shall invest its assets only in accordance with the
20 provisions of this title relating to the investment of the
21 capital of domestic stock insurance companies authorized to
22 transact the same class or classes of insurance.
23 (2) A mutual company that writes nonassessable policies
24 shall invest its assets in accordance with the provisions of
25 this title relating to the investment of the capital of
26 domestic stock insurance companies authorized to transact the
27 same class or classes of insurance, and may invest any of its
28 excess over and above an amount equal to the minimum capital
29 requirements of such stock companies in accordance with the
30 provisions of this title relating to the investment of the
19850H1962B2642 - 514 -
1 surplus of domestic stock insurance companies authorized to
2 transact such class or classes of insurance.
3 § 4704. Investments in real estate.
4 A domestic mutual company may purchase, receive, hold and
5 convey only the following kinds of real estate:
6 (1) Real estate necessary for its accommodation in the
7 transaction of its business.
8 (2) Real estate conveyed to it in satisfaction of debts
9 previously contracted in the course of its dealings.
10 (3) Real estate purchased at sales upon judgments,
11 decrees or mortgages obtained or made for debts due the
12 company or for debts due other persons if the company has
13 liens or encumbrances on the same, and the purchase is
14 believed necessary to save the company from loss.
15 All real estate other than that purchased and held under
16 paragraph (1) shall be sold and disposed of within five years
17 after the company has acquired title thereto.
18 § 4705. Policy provisions.
19 Mutual companies may insert in any form of policy prescribed
20 by this title any provision or condition required by its plan of
21 insurance which is not inconsistent or in conflict with this
22 title. The policy, in lieu of conforming to the language and
23 form prescribed by this title, may conform thereto in substance,
24 if the policy includes a provision or endorsement reciting that
25 the policy shall be construed as if in the language and form
26 prescribed by this title, and a copy of the policy and
27 endorsements is first filed with and is not disapproved by the
28 commissioner.
29 § 4706. Countersigning and delivery of policies.
30 A mutual company shall comply with the provisions of this
19850H1962B2642 - 515 -
1 title applicable to stock insurance companies transacting the
2 same kind of insurance, requiring that policies be countersigned
3 and delivered through a resident agent, unless no commission is
4 paid to any local agent on the policy.
5 § 4707. Premiums.
6 (a) Maximum premium.--The maximum premium payable by any
7 member of a mutual company shall be expressed in the policy or
8 in the application for the insurance if attached to the policy.
9 The maximum premium shall be a cash premium and an additional
10 contingent premium not less than the cash premium or may be
11 solely a cash premium.
12 (b) Surplus.--A policy shall not be issued for a cash
13 premium without an additional contingent premium, unless the
14 company has and maintains a surplus which is not less in amount
15 than the minimum capital required of domestic stock insurance
16 companies authorized to transact the same class or classes of
17 insurance.
18 (c) Nonassessable policies.--Before a mutual company may
19 issue a nonassessable policy, the president and secretary shall
20 furnish the commissioner a certified copy of the resolution of
21 the board of directors providing for the issuance of a
22 nonassessable policy, and shall certify that the company
23 possesses a surplus as required under subsection (b) and that
24 the company is otherwise qualified under its charter and bylaws.
25 When the commissioner is satisfied that the company meets the
26 requirements as certified, he shall issue to the company a
27 certificate of authority for the issuance of nonassessable
28 policies. Any nonassessable policy issued while the certificate
29 is in force shall remain nonassessable under all conditions,
30 including any surplus deficiency and including liquidation of
19850H1962B2642 - 516 -
1 the company. This certificate shall continue in effect until
2 revoked under this section. The president and secretary of the
3 company shall file with the commissioner, on or before April 1
4 of each year, a certification that the resolution of the board
5 of directors providing for the issuance of nonassessable
6 policies has not been modified or revoked and that the company
7 has the surplus as required under subsection (b). The
8 commissioner may, after hearing, revoke the certificate of
9 authority to issue a nonassessable policy if he finds that the
10 company does not have the surplus as required under subsection
11 (b), and shall revoke the certificate upon receipt of
12 certification by the president and secretary that the company no
13 longer qualifies to issue nonassessable policies.
14 (d) Violations and penalties.--Any officer or director who
15 willfully makes a false certification that the company possesses
16 the surplus as required under subsection (b) commits a
17 misdemeanor of the third degree and shall, upon conviction, be
18 sentenced to pay a fine of not less than $1,000 or more than
19 $5,000 or to imprisonment for not more than one year, or both.
20 § 4708. Reserves.
21 A mutual company shall maintain unearned premium and other
22 reserves separately, for each kind of insurance, upon the same
23 basis as that required of domestic stock insurance companies
24 transacting the same kind of insurance, except that the
25 commissioner may, by written order, fix a different basis of
26 reserve for losses and claim in workmen's compensation
27 insurance. Any reserve for losses or claims based upon the
28 premium income shall be computed upon the net premium income,
29 after deducting any so-called dividend or premium returned or
30 credited to the member. The provisions relating to unearned
19850H1962B2642 - 517 -
1 premium reserve do not apply to a policy issued by a domestic
2 mutual fire insurance company under the authority of section
3 3302(b)(1) (relating to authorized classes of insurance) if the
4 policy includes or if a promissory note attached thereto
5 includes a limited or unlimited liability to assessment.
6 § 4709. Assessments.
7 (a) General rule.--A mutual company lacking assets at least
8 equal to the unearned premium reserve and other liabilities
9 shall make an assessment upon its members liable to assessment
10 to provide for the deficiency. The assessment shall be against
11 each member in proportion to the liability as expressed in his
12 policy.
13 (b) Limitations.--An assessment shall not be made without
14 the prior written approval of the commissioner. A member shall
15 not be assessed for any loss that occurred when his policy was
16 not in effect, and an assessment shall not be made after two
17 years from the expiration or cancellation date of a policy. For
18 each year the policy is in force, the assessment shall be an
19 amount not greater than the annual or the average yearly cost or
20 premium of the policy for the period it has been in effect. The
21 assessment shall not exceed two times the average yearly cost or
22 premium of the policy for the period it has been in effect.
23 (c) Powers of commissioner.--The commissioner may, by
24 written order, relieve the company from an assessment or other
25 proceedings to restore its assets during the time fixed in such
26 order. Any domestic company which is deficient in providing the
27 unearned premium reserve may, notwithstanding the deficiency, be
28 authorized under this chapter on the condition that it shall
29 each year thereafter reduce the deficiency by at least 15% of
30 the original amount thereof, and in such case it may increase
19850H1962B2642 - 518 -
1 its assessments accordingly.
2 (d) Applicability.--This section is not applicable to
3 assessments made upon the members of a company by the
4 commissioner pursuant to his authority under Chapter 59
5 (relating to fire and marine insurance).
6 § 4710. Loans to companies.
7 Any director, officer or member of any mutual company, or any
8 other person, may loan the company any sum of money necessary
9 for the purpose of its business or to enable it to comply with
10 any of the requirements of law. These loans and the interest
11 thereon as agreed upon, not exceeding 10% a year, shall not be a
12 liability or claim against the company or any of its assets, and
13 shall be repaid only out of the surplus earnings of the company.
14 Commission or promotion expenses shall not be paid in connection
15 with the loan and the amount thereof shall be reported in each
16 annual statement. The company shall prior to obtaining such a
17 loan provide the commissioner with such evidence as he may by
18 regulation prescribe concerning the making of any loan or the
19 making of any payments, whether of principal or interest, on
20 account thereof.
21 § 4711. Surplus.
22 A mutual company shall not transact the class of insurance
23 mentioned in section 3302(c)(1) (relating to authorized classes
24 of insurance) until it has and maintains at all times a surplus
25 over all liabilities including unearned premiums, computed in
26 accordance with this title, of not less than $250,000. This
27 section does not reduce the surplus required under section
28 4707(b) (relating to premiums).
1 CHAPTER 41
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1 BENEFICIAL SOCIETIES
2 Sec.
3 4101. Short title of chapter.
4 4102. Applicability of chapter.
5 4103. Limitation of benefits.
6 4104. Selection of directors.
7 4105. Holding management or agency corporations.
8 4106. Reserves.
9 4107. Investment of surplus.
10 4108. Annual statements.
11 4109. Examinations.
12 4110. Filing and approval of documents.
13 4111. Qualifications of solicitors and agents.
14 4112. Inclusion of certain documents in policy.
15 4113. Criminal penalties.
16 4114. Civil penalties.
17 4115. Transfer restrictions.
18 § 4101. Short title of chapter.
19 This chapter shall be known and may be cited as the
20 Beneficial Society Act.
21 § 4102. Applicability of chapter.
22 This chapter applies to the following beneficial societies:
23 (1) All beneficial societies incorporated under general
24 or special laws since October 13, 1857.
25 (2) All beneficial societies incorporated before
26 September 1, 1937, which have accepted the provisions of the
27 Constitution of Pennsylvania and the general insurance laws
28 enacted since October 13, 1857.
29 (3) All beneficial societies incorporated under any
30 general or special law prior to October 13, 1857, which by
19850H1962B2642 - 520 -
1 the terms of their charters or the statutes under which they
2 were incorporated hold charters subject to alteration or
3 revocation.
4 (b) Exclusions.--This chapter does not apply to:
5 (1) Beneficial associations which are formed by or for
6 the exclusive benefit of those who, at the time of becoming
7 members, are engaged in educational work in any department or
8 district of the public school system of this Commonwealth or
9 in any college or university in this Commonwealth, and which
10 issued beneficiary certificates only to such members.
11 (2) Fraternal, charitable or secret societies issuing
12 beneficial certificates and paying benefits to their
13 membership through the lodge system.
14 (3) Insurance or relief associations formed by or for
15 the exclusive benefit of employees of corporations or firms,
16 or formed by or for the exclusive benefit of members of any
17 religious corporation or association.
18 (4) Associations whose benefits are limited to post-
19 mortem assessments of the members.
20 (c) Applicability of insurance law.--Except as otherwise
21 provided in this chapter and in section 4505(f) (relating to
22 applicability of chapter), the business and affairs of every
23 beneficial society shall be run and regulated under the law
24 relating to insurance companies.
25 § 4103. Limitation of benefits.
26 Any beneficial society may pay or enter into contracts to pay
27 money or benefits, not exceeding $20 per week in the event of
28 sickness, accident or disability, and not exceeding $250 in the
29 event of death.
30 § 4104. Selection of directors.
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1 (a) General rule.--The annual meeting of members for
2 election of directors of a beneficial society shall be held at
3 such time, prior to May 1 in every year, as the bylaws of the
4 society may direct. Notice of the time and place of meeting
5 shall be given to the members in accordance with the bylaws. At
6 this annual meeting, the members shall elect by ballot the
7 number of directors stated in the articles of association or the
8 bylaws, which shall be not less than 5 nor more than 13. Each
9 director shall hold office for the term for which he is elected
10 and until his successor has been elected and qualified.
11 (b) Terms of service.--Except as otherwise provided in the
12 bylaws, each director shall be elected for a term of one year.
13 If the articles or bylaws of a beneficial society so provide,
14 the directors may be classified in respect to the time for which
15 they shall hold office. In such case, each class shall be as
16 nearly equal in number as possible, the term of office of at
17 least one class shall expire in each year, and the members of a
18 class shall not be elected for a shorter period than one year or
19 for a longer period than three years. At each ensuing election
20 of directors after classification, only the number of directors
21 equal to the number of the class whose terms expire at the time
22 of the election shall be elected, and these directors shall be
23 elected for the longest term for which any class may have been
24 elected, as provided in this section.
25 (c) Vacancies.--Except as otherwise provided in the bylaws,
26 vacancies in the board of directors shall be filled by the
27 remaining members of the board. Each person so elected shall be
28 a director until his successor is elected by the shareholders or
29 members, who may make such election at the next annual meeting
30 of the shareholders or members or at any special meeting called
19850H1962B2642 - 522 -
1 for that purpose and held prior thereto.
2 § 4105. Holding, management or agency corporations.
3 The business and affairs of each beneficial society shall be
4 conducted and managed by its elected officers. Contracts or
5 agreements shall not be entered into by any society with any
6 holding, management or agency corporation or other person by
7 which the control of the management of the society would pass to
8 such a corporation or other person or through which percentages
9 or portions of the members' dues and other payments would be
10 paid over to them.
11 § 4106. Reserves.
12 (a) Determination of amount.--A beneficial society doing
13 business in this Commonwealth shall, at all times, maintain
14 reserves as follows:
15 (1) On the life portion, contained in all policies or
16 contracts, reserves shall be based upon a standard table of
17 mortality, approved by the commissioner, with interest at a
18 rate also approved by the commissioner, and such reserves
19 shall be computed in accordance with the requirements of this
20 title for the computation of the reserve liability for life
21 insurance.
22 (2) On the disability portion, except in the case of
23 noncancelable health and accident insurance issued on and
24 after January 1, 1950, contained in all policies or
25 contracts, reserves shall be computed in accordance with the
26 requirements of this title for the computation of the
27 unearned premium reserve liability for casualty insurance.
28 (3) For all definite and outstanding claims, reserves
29 shall be calculated in accordance with the requirements of
30 this title for the computation of reserves against unpaid
19850H1962B2642 - 523 -
1 losses in casualty insurance, other than losses under
2 noncancelable health and accident insurance issued on and
3 after January 1, 1950, compensation insurance or liability
4 insurance.
5 (4) On the noncancelable health and accident insurance
6 portion contained in all policies or contracts issued on and
7 after January 1, 1950, reserves shall be computed in
8 accordance with the requirements of this title for the
9 computation of policy and loss reserves for noncancelable
10 health and accident insurance.
11 (b) Investment of reserves.--A sum equal to the amount of
12 the reserves required by this section shall be invested in those
13 investments authorized by this title for the investment of the
14 reserve funds of life insurance companies.
15 (c) Approval by commissioner.--The commissioner shall each
16 year approve the computation of the reserve liability, as of
17 December 31 of the preceding year, of every beneficial society
18 authorized to make insurance on lives in this Commonwealth.
19 (d) Suspension of authority.--Whenever any beneficial
20 society doing business in this Commonwealth does not have on
21 hand the net value of all policies in force after all other
22 debts and claims against it have been provided for, the
23 commissioner shall prohibit the beneficial society from issuing
24 new policies until its funds become equal to its liabilities.
25 (e) Definitions--As used in this section the term
26 "noncancelable health and accident insurance" means insurance
27 against disability resulting from sickness, ailment or bodily
28 injury under a policy or contract under which the insurer does
29 not have the option to cancel or otherwise terminate the
30 contract at or after the expiration of one year from its
19850H1962B2642 - 524 -
1 effective date.
2 § 4107. Investment of surplus.
3 The surplus of a beneficial society or a reincorporated
4 mutual beneficial society shall be invested in accordance with
5 the requirements of this title for the investment of the surplus
6 of life insurance companies.
7 § 4108. Annual statements.
8 (a) General rule.--Every beneficial society doing business
9 in this Commonwealth shall annually, on or before March 1, file
10 with the commissioner a statement which shall exhibit its
11 financial condition as of December 31 of the previous year and
12 its business of that year. The statement shall be in the form
13 prescribed, or on forms furnished, by the commissioner, and
14 shall contain such information as the commissioner deems best
15 adapted for the purpose of eliciting from the beneficial society
16 a true exhibit of its financial condition. Within 30 days after
17 being requested by the commissioner, the society shall render
18 such additional statements concerning its affairs and financial
19 condition as the commissioner requires.
20 (b) Penalties.--Any beneficial society which neglects to
21 make and file its annual statement in the form or within the
22 time required by this section shall forfeit a sum of not more
23 than $100 for each day during which its failure to file a
24 statement continues, and, upon notice from the commissioner, its
25 authority to transact new business shall cease while its default
26 continues. A beneficial society and the persons who make an oath
27 or subscribe to a false annual statement in its behalf shall
28 severally be punished for willfully making a false annual
29 statement by a fine of not less than $500 or more than $5,000. A
30 person who makes oath to a false statement filed under
19850H1962B2642 - 525 -
1 subsection (a) with the knowledge that it is false shall also be
2 subject to any applicable penalties under 18 Pa.C.S. Ch. 49
3 Subch. A (relating to perjury and falsification in official
4 matters).
5 § 4109. Examinations.
6 (a) Powers of commissioner.--The commissioner shall have the
7 power of visitation and examination into the affairs of every
8 beneficial society. He shall have free access to all the books,
9 papers and documents that relate to the business of the society,
10 and may summon and qualify as a witness under oath and examine
11 its officers and employees or other persons in relation to the
12 affairs, transactions and conditions of the society. These
13 examinations shall be made every three years or oftener as
14 necessary, and the costs of the examinations, as determined by
15 the commissioner, shall be imposed upon each society examined.
16 (b) Proceedings by Attorney General.--Whenever after
17 examination the commissioner finds that any beneficial society
18 is exceeding its powers, transacting business fraudulently,
19 operating in such a condition that its further transaction of
20 business will be hazardous to its members or to the public or
21 discontinuing business, the commissioner may present the facts
22 relating thereto to the Attorney General who may proceed against
23 the society under the provisions relating to the liquidation of
24 insolvent or delinquent companies or associations transacting
25 any class of insurance. Proceedings shall not be commenced by
26 the Attorney General until after notice has been duly served on
27 the chief executive officers of the society, and a reasonable
28 opportunity given to it, on a date stated in the notice, to show
29 cause why such proceedings should not be commenced. An
30 application for injunction against or proceedings for the
19850H1962B2642 - 526 -
1 dissolution of, or appointment of a receiver for, any beneficial
2 society or branch thereof, shall not be entertained by any court
3 unless made by the Attorney General.
4 § 4110. Filing and approval of documents.
5 A policy, contract or certificate of membership shall not be
6 issued or delivered by any beneficial society in this
7 Commonwealth, nor any application, rider or endorsement used in
8 connection therewith, until the forms of the same have been
9 submitted to and approved by the commissioner under such rules
10 and regulations as he shall make concerning their terms and
11 provisions and their submission to and approval by him.
12 § 4111. Qualifications of solicitors and agents.
13 Solicitors or agents for beneficial societies shall meet the
14 requirements of Subchapter A of Chapter 11 (relating to agents).
15 § 4112. Inclusion of certain documents in policy.
16 All beneficial certificates issued by any beneficial society
17 in which the application of the member, the constitution, bylaws
18 or other rules of the society form part of the certificate or
19 contract between the parties thereto, or have any bearing
20 thereon, shall contain or have attached thereto correct copies
21 of the application as signed by the applicant or the
22 constitution, bylaws or other rules referred to. Unless so
23 attached and accompanying the certificate or contract, the
24 application, constitution, bylaws or other rules shall not be
25 received in evidence in any controversy between the parties to
26 or interested in the certificate or contract, nor shall they be
27 considered a part of the certificate or contract between the
28 parties.
29 § 4113. Criminal penalties.
30 Any person or beneficial society violating any of the
19850H1962B2642 - 527 -
1 provisions of this chapter commits a misdemeanor of the third
2 degree.
3 § 4114. Civil penalties.
4 (a) General rule.--Upon satisfactory evidence of the
5 violation of this chapter by any beneficial society, the
6 commissioner may pursue any one or more of the following courses
7 of action:
8 (1) Suspend or revoke the certificate of authority of
9 the offending beneficial society.
10 (2) Refuse for a period of not to exceed one year
11 thereafter to issue a new certificate of authority to the
12 beneficial society.
13 (3) Impose a penalty of not more than $1,000 for each
14 violation.
15 (b) Procedure.--Before the commissioner takes any action
16 under subsection (a) he shall give written notice to the
17 beneficial society accused of violating the law, stating
18 specifically the nature of the alleged violation, and fixing a
19 time and place, at least ten days thereafter, when a hearing of
20 the matter shall be held. After the hearing or upon failure of a
21 duly authorized representative of the accused beneficial society
22 to appear at the hearing, the commissioner shall impose the
23 penalty.
24 § 4115. Transfer restrictions.
25 (a) General rule.--An unincorporated association which
26 provides mutual benefit insurance to persons engaged in a common
27 calling labor or enterprise, of an agricultural or industrial
28 nature, may provide, by rule or bylaw, that membership in the
29 association or interest in its funds or property shall be
30 nontransferable without the consent of the association.
19850H1962B2642 - 528 -
1 (b) Effect of transfer restriction.--Whenever such an
2 association adopts a restriction under subsection (a), the
3 restriction shall be valid and binding. An attempted assignment,
4 pledge or other transfer of membership or interest made in
5 violation of the restriction shall not pass any legal or
6 equitable right or interest to any person to whom it is
7 attempted to be made if the rule or bylaw is brought to the
8 knowledge of such attempted transferee. If the interest of a
9 member in the funds or property of such an association is
10 evidenced by a certificate, an endorsement thereon that the
11 certificate is nontransferable is conclusive evidence that the
12 attempted transferee of the certificate has knowledge of the
13 nontransferable character of the member's interest.
14 CHAPTER 43
15 FRATERNAL BENEFIT SOCIETY CODE OF 1972
16 Subchapter
17 A. Preliminary Provisions
18 B. Certification and General Regulation
19 C. Organization and Operation
20 D. Financial Matters
21 E. Conversion to Mutual Life Insurance Company
22 F. Foreign Societies
23 G. Crimes and Penalties
24 H. Regulation of Beneficial Societies
25 SUBCHAPTER A
26 PRELIMINARY PROVISIONS
27 Sec.
28 4301. Short title and applicability of chapter.
29 4302. Definitions.
30 4303. Exemptions applicable to fraternal benefit societies.
19850H1962B2642 - 529 -
1 § 4301. Short title and applicability of chapter.
2 (a) Short title of chapter.--This chapter shall be known and
3 may be cited as the Fraternal Benefit Society Code of 1972.
4 (b) Applicability of chapter.--This chapter shall apply to
5 every fraternal benefit society and to every person who violates
6 this chapter.
7 (c) Exceptions.--Notwithstanding subsection (b), this
8 chapter does not apply to:
9 (1) Grand or subordinate lodges of purely social or
10 labor organizations, nor to societies which limit their
11 membership to any one hazardous occupation, nor to domestic
12 societies which limit their membership to a particular
13 religion, nor to the employees of a particular municipal
14 corporation, firm or corporation, nor to domestic religious,
15 charitable or benevolent lodges, orders or associations,
16 which do not provide for a benefit of more than $300 to any
17 one person in any one year.
18 (2) Similar societies which do not issue benefit
19 certificates, or associations of local lodges of a society,
20 doing business in this Commonwealth on May 20, 1921, which
21 provide death benefits not to exceed $500 to any one person
22 or disability benefits not exceeding $300 in any one year to
23 any one person, or both, and contracts of reinsurance
24 business on such plan in this Commonwealth. However, in the
25 case of any society conducting any insurance branch and
26 issuing certificates and paying death benefits of more than
27 $500, the insurance branch of that society shall be subject
28 to this chapter.
29 (3) Beneficial societies without ritualistic work or a
30 representative form of government, transacting any class of
19850H1962B2642 - 530 -
1 insurance.
2 § 4302. Definitions.
3 The following words and phrases when used in this chapter
4 shall have the meanings given to them in this section unless the
5 context clearly indicates otherwise:
6 "Fraternal benefit society" or "society." Any corporation,
7 society, order or voluntary association, without capital stock,
8 organized and carried on solely for the mutual benefit of its
9 members and their beneficiaries, and not-for-profit, and having
10 a lodge system and representative form of government, or which
11 limits its membership to a secret fraternity having a lodge
12 system and representative form of government, and which shall
13 make provision for the payment of benefits in accordance with
14 section 4326 (relating to power to write insurance).
15 "Lodge." A constituent lodge, council, branch or other
16 subordinate unit of a society, by whatever name known.
17 "Lodge system." With respect to a society, having a supreme
18 governing or legislative body and subordinate lodges into which
19 members are admitted in accordance with its organic law and
20 providing for the holding of periodic meetings.
21 "Organic law." The articles of incorporation, bylaws,
22 constitution, laws, ritual, rules and regulations of a society.
23 "Representative form of government." With respect to any
24 society, providing in its organic law for a supreme legislative
25 or governing body composed of representatives elected either by
26 the members or by delegates elected, directly or indirectly, by
27 the members, together with such other members as prescribed by
28 its organic law.
29 § 4303. Exemptions applicable to fraternal benefit societies.
30 (a) General insurance laws.--Except as otherwise provided in
19850H1962B2642 - 531 -
1 this chapter, a fraternal benefit society holding a certificate
2 of authority under this chapter shall not be subject to the
3 statutes of this Commonwealth now in force relating to the
4 business of insurance and no statute hereafter enacted relating
5 to the business of insurance shall apply to such a society
6 unless the statute specifically refers and applies to such a
7 society.
8 (b) Tax laws.--Every society holding a certificate of
9 authority under this chapter is deemed a charitable and
10 benevolent institution, and all its income, funds, investments
11 and property shall be exempt from all taxation by the
12 Commonwealth or its political subdivisions, other than taxes on
13 real estate.
14 SUBCHAPTER B
15 CERTIFICATION AND GENERAL REGULATION
16 Sec.
17 4311. Preliminary certification.
18 4312. Organizational period.
19 4313. Permanent certificate of authority.
20 4314. Certain fundamental changes.
21 4315. Examination of societies.
22 4316. Restrictions on publication of examinations.
23 4317. Registration of principal office.
24 § 4311. Preliminary certification.
25 (a) General rule.--A corporation, fraternal benefit society,
26 order or voluntary association shall not solicit or collect any
27 payment on account of any death, disability or other benefit nor
28 issue any benefit certificates nor pay or allow, or offer or
29 promise to pay or allow, to any person any death, disability or
30 any other benefit, until it receives from the commissioner a
19850H1962B2642 - 532 -
1 preliminary certificate authorizing the society to solicit
2 members for beneficial purposes under this section.
3 (b) Form of application.--Every application for a
4 preliminary certificate under this section may be made only by a
5 nonprofit corporation as defined in Title 15 (relating to
6 corporations and unincorporated associations), shall be made to
7 the commissioner in writing and shall be in such form and
8 contain such information as the regulations of the commissioner
9 shall require, including:
10 (1) The name of the society, which shall not so closely
11 resemble the name of any society or insurance company already
12 doing business in this Commonwealth as to be misleading or
13 confusing.
14 (2) The purpose for which the society is incorporated,
15 which shall not include more liberal powers than are
16 permitted by this chapter. Any lawful social, intellectual,
17 educational, charitable, benevolent, moral or religious
18 advantages may be set forth among the purposes of the
19 society.
20 (3) The mode in which the corporate powers of the
21 society are to be exercised.
22 (4) The address, including street and number, if any, of
23 the principal office of the society in this Commonwealth.
24 (5) The names, residence and official titles of all the
25 officers, trustees, directors or other persons who are to
26 have and exercise the general control and management of the
27 affairs and funds of the society for the first year or to the
28 ensuing election at which all such officers shall be elected
29 by the supreme legislative or governing body. This election
30 shall be held not later than one year from the date of the
19850H1962B2642 - 533 -
1 issuance of the permanent certificate of authority.
2 (c) Additional documentation.--The application shall be
3 accompanied by certified copies of the organic law of and copies
4 of all proposed forms of benefit certificates, applications
5 therefor, and circulars to be issued by the society and a bond
6 in the sum of $5,000 with sureties approved by the commissioner,
7 conditioned upon the return to applicants of the advance
8 payments as provided in this subchapter, if the organization is
9 not complete within one year.
10 (d) Standards for issuance of preliminary certificate.--A
11 preliminary certificate shall be issued by order of the
12 commissioner if he finds and determines that the application
13 complies with this chapter and the regulations thereunder.
14 (e) Procedure.--For the purpose of enabling the commissioner
15 to make the finding or determination required by subsection (d),
16 the commissioner, by publication of notice in the Pennsylvania
17 Bulletin, shall afford reasonable opportunity for hearing, which
18 shall be public. Before or after the hearing, it may make such
19 inquiries, audits and investigations, and may require the
20 submission of such supplemental studies and information, as he
21 deems necessary or proper to enable him to reach a finding or
22 determination. The commissioner, in granting a certificate of
23 authority, may impose such conditions as he deems just and
24 reasonable. In every case the commissioner shall make a finding
25 or determination in writing, stating whether or not the
26 application has been approved, and, if it has been approved in
27 part only, specifying the part which has been approved and the
28 part which has been denied. Any holder of a certificate of
29 authority exercising the authority conferred thereby shall be
30 deemed to have waived all objections to the terms and conditions
19850H1962B2642 - 534 -
1 of the certificate.
2 (f) Judicial review.--Orders of the commissioner upon the
3 application for a preliminary certificate under this section
4 shall be subject to judicial review as provided by law.
5 § 4312. Organizational period.
6 (a) Solicitation permitted.--Upon receipt of the preliminary
7 certificate a society may solicit members for the purpose of
8 completing its organization. It shall collect from each
9 applicant the amount of not less than one regular monthly
10 payment in accordance with its table of rates, as provided by
11 its organic law, and shall issue to each applicant a receipt for
12 the amounts so collected.
13 (b) Duration of period.--A preliminary certificate shall not
14 be valid after one year from its date or after such further
15 period, not exceeding one year, as may be authorized by the
16 commissioner, upon cause shown.
17 § 4313. Permanent certificate of authority.
18 (a) General rule.--A corporation, fraternal benefit society,
19 order or voluntary association shall not incur any liability,
20 other than advance payments received by a holder of a
21 preliminary certificate pursuant to the certificate, nor issue
22 any benefit certificates nor pay or allow, or offer or promise
23 to pay or allow, to any person any death, disability or other
24 benefit, unless it receives from the commissioner a certificate
25 of authority authorizing the society to establish, maintain and
26 operate a benefit program under this chapter.
27 (b) Exemptions.--The provisions of subsection (a) do not
28 apply to:
29 (1) Any society organized prior to April 6, 1893, under
30 any statute of this Commonwealth which was engaged in doing
19850H1962B2642 - 535 -
1 business in this Commonwealth on that date. Any such society
2 may exercise all the rights conferred by this chapter and all
3 the rights, powers, privileges and exemptions now exercised
4 or possessed by it, under its charter or articles of
5 incorporation or articles of association, and neither its
6 existence as a corporation nor its right to exercise any
7 corporate rights vested in it by virtue of its past
8 incorporation are affected by this chapter. Any corporation
9 described in this paragraph is deemed to be a holder of a
10 certificate of authority issued under this section.
11 (2) Any society incorporated under the former provisions
12 of the act of April 6, 1893 (P.L.10, No.6), the act of May
13 20, 1921 (P.L.916, No.324) or the act of July 17, 1935
14 (P.L.1092, No.357), relating to fraternal benefit societies.
15 (c) Form of application.--Every application for a
16 certificate of authority under this section shall be made to the
17 commissioner in writing and shall be in such form and shall
18 contain such information as the regulations of the commissioner
19 shall require, including:
20 (1) Evidence that actual bona fide applications for
21 death benefit certificates have been secured upon at least
22 500 lives for at least $500 each.
23 (2) Evidence that there have been established five
24 subordinate lodges into which the 500 applicants have been
25 initiated.
26 (3) A list of the applicants, under oath of the
27 president and secretary or the corresponding officers of the
28 society, giving the names, addresses, date initiated, name
29 and number of the lodge of which each applicant is a member,
30 amount of benefits to be granted, rate of stated periodic
19850H1962B2642 - 536 -
1 contributions, which shall be sufficient to provide for
2 meeting the mortuary obligations contracted when valued for
3 death benefits upon the basis of the National Fraternal
4 Congress Table of Mortality, as adopted by the National
5 Fraternal Congress, August 23, 1899, or any higher standard,
6 at the option of the society, and for disability benefits by
7 tables based upon reliable experience, and for combined death
8 and permanent total disability benefits by tables based upon
9 reliable experience, with an interest assumption not higher
10 than 4% a year.
11 (4) The sworn statement of the treasurer, or the
12 corresponding officer of the society, to the effect that not
13 less than 500 applicants have each paid in cash at least one
14 regular monthly payment, as provided in this subchapter, per
15 $500 of benefits to be effected, which payments in the
16 aggregate shall amount to at least $500 and be credited to
17 the mortuary or disability fund on account of the applicants.
18 No part of such funds shall be used for expenses. These
19 advanced payments shall be held in trust during the period of
20 organization and, if the organization is not completed within
21 one year, or such further period as authorized by the
22 commissioner pursuant to this subchapter, shall be returned
23 to the applicants.
24 (d) Standards for issuance of certificate of authority.--A
25 certificate of authority shall be issued by order of the
26 commissioner only if he finds and determines that the
27 application complies with this chapter and the regulations
28 thereunder.
29 (e) Procedure.--The proceedings before the department shall
30 be subject to the provisions of section 4311(e) (relating to
19850H1962B2642 - 537 -
1 preliminary certification).
2 (f) Judicial review.--Orders of the commissioner upon an
3 application for a certificate of authority under this section
4 shall be subject to judicial review as provided by law.
5 § 4314. Certain fundamental changes.
6 (a) General rule.--A domestic fraternal benefit society
7 holding a certificate of authority under this chapter shall not
8 amend its articles of incorporation or merge, consolidate,
9 divide or reinsure with or accept the transfer of the membership
10 or funds of any other corporation, society, order or voluntary
11 association without first securing the approval of the
12 commissioner with respect thereto. This subsection does not
13 preclude any society from reinsuring all or part of any
14 individual risk with any other society or company.
15 (b) Form of application.--Every application for approval of
16 a fundamental change under this section shall be made to the
17 commissioner in writing and shall be in such form and shall
18 contain such information as the regulations of the commissioner
19 shall require.
20 (c) Standards for approval of fundamental changes.--The
21 amendment of articles, merger, consolidation, division,
22 reinsurance or transfer of or by the society shall be approved
23 by order of the commissioner only if he finds and determines
24 that the fundamental change conforms to law, including the
25 regulations under this chapter, and, except in the case of
26 reinsurance with a foreign society, will result in a society or
27 societies which, under this chapter and the regulations
28 thereunder, would be eligible to receive a certificate of
29 authority as a fraternal benefit society.
30 (d) Procedure.--The proceedings before the department shall
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1 be subject to the provisions of section 4311(e) (relating to
2 preliminary certification).
3 (e) Judicial review.--Orders of the commissioner upon an
4 application for approval under this section shall be subject to
5 judicial review as provided by law.
6 § 4315. Examination of societies.
7 (a) General rule.--Every domestic, foreign or alien
8 fraternal benefit society shall be subject to examination not
9 less frequently than once in every three years by the
10 commissioner who shall have free access to all the books,
11 records, papers and documents that relate to the business of the
12 society, and may examine the officers, agents, employees or
13 other persons, under oath, in relation to its affairs,
14 transactions and conditions. The examination shall be made at
15 such times as the department shall deem necessary. All expenses
16 incurred in connection with any examination under this section,
17 including compensation of the deputies, examiners and other
18 employees of the commissioner assisting in such an examination,
19 shall be charged to and paid by the society, at such times and
20 in such manner as shall be prescribed by regulation.
21 (b) Action against delinquent domestic societies.--Whenever
22 after examination the commissioner is satisfied that any
23 domestic society is exceeding its powers, is transacting
24 business fraudulently or is in such condition that its further
25 transaction of business will be hazardous to its members or to
26 the public or has determined to discontinue business, the
27 commissioner may present the facts relating thereto to the
28 Attorney General. The Attorney General may proceed against the
29 society in the manner prescribed by this title providing for the
30 liquidation of insolvent or delinquent companies, or
19850H1962B2642 - 539 -
1 associations transacting any class of insurance. The proceedings
2 shall not be commenced by the Attorney General against the
3 society until after notice has been served on the chief
4 executive officers of the society and a reasonable opportunity
5 given to it, on a date named in the notice, to show cause why
6 such proceedings should not be commenced. An application for
7 injunction against, or proceedings for the dissolution of or
8 appointment of a receiver for, any domestic society or lodge
9 thereof shall not be entertained by any court unless the
10 application is made by the Attorney General.
11 (c) Action against delinquent foreign or alien society.--If
12 any foreign or alien society or its officers refuse to submit to
13 the examination required by subsection (a) or to comply with
14 subsection (a) relative to the examination, the authority of the
15 society to write new business in this Commonwealth shall be
16 suspended or its license refused until satisfactory evidence is
17 furnished the commissioner relating to the condition and affairs
18 of the society.
19 § 4316. Restrictions on publication of examinations.
20 The commissioner shall not make public or permit to become
21 public any financial statement, report or finding affecting the
22 status, standing or rights of any society, until a copy thereof
23 is served upon the fraternal benefit society at its home office
24 and the society is afforded a reasonable opportunity to comment
25 on the material and to make such showing in connection therewith
26 as it may desire.
27 § 4317. Registration of principal office.
28 A fraternal benefit society shall not change its registered
29 office in this Commonwealth to another location without first
30 giving the commissioner written notice of the change at least
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1 ten days before the change will take effect.
2 SUBCHAPTER C
3 ORGANIZATION AND OPERATION
4 Sec.
5 4321. Restrictions on governmental structure.
6 4322. General powers of fraternal benefit societies.
7 4323. Collection of sufficient contributions.
8 4324. Waiver of organic law.
9 4325. Individual liability.
10 4326. Power to write insurance.
11 4327. Members and beneficiaries.
12 4328. Benefits upon lives of children.
13 4329. Beneficiary certificates.
14 4330. Liens against certificates.
15 4331. Attachment of benefits.
16 4332. Notice required for agreement with beneficiary.
17 4333. Beneficiary predeceasing a member.
18 4334. Disappearance of member.
19 4335. Exemption of societies paying accident benefits only.
20 § 4321. Restrictions on governmental structure.
21 (a) Supreme body.--The supreme legislative or governing body
22 of a fraternal benefit society shall satisfy the following
23 requirements:
24 (1) The elective members of the supreme or governing
25 body shall constitute a majority in number and not less than
26 the number of votes required to amend the organic law of the
27 society.
28 (2) The meetings of the supreme or governing body and
29 the election of officers, representatives or delegates shall
30 be held as often as once in four calendar years, unless, due
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1 to war emergency, the Federal Government has limited or
2 prohibited travel for meeting or convention purposes, in
3 which event, upon request by the society, the commissioner
4 may either waive the requirement that the meeting be held or
5 extend the time for holding the meeting.
6 (b) Participation by children.--A member under 16 years of
7 age shall not have any voice in the management of the society.
8 (c) Voting by proxy prohibited.--A member, officer,
9 representative or delegate shall not vote by proxy.
10 § 4322. General powers of fraternal benefit societies.
11 Every fraternal benefit society holding a certificate of
12 authority under this chapter may make and amend its organic law
13 for the government of the society, the management of its
14 affairs, the admission and classification of its members, the
15 control and regulation of the terms and conditions governing the
16 issue of its benefit certificates, and the character or kind of
17 benefits or privileges payable or allowable thereunder, the
18 fixing and adjustment of the rates of contribution, fees or dues
19 payable by its members, and the allotment of such receipts to
20 the different funds of the society. This organic law, when made
21 and as amended, shall be the law governing the society and its
22 officers, board of directors or managers, its subordinate or
23 constituent lodges and all members and beneficiaries in their
24 relation thereto. Each society shall file with the commissioner
25 a certified copy of its organic law as enacted and as amended,
26 within 90 days after enactment or amendment. Printed copies of
27 the organic law, certified by the secretary or corresponding
28 officer of the society, shall be prima facie evidence of the
29 legal adoption thereof.
30 § 4323. Collection of sufficient contributions.
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1 The organic law of every fraternal benefit society shall
2 provide that, if the stated periodic contributions of the
3 members are insufficient to pay all matured claims in full and
4 to provide for the payment of its benefit fund obligations,
5 valued upon a valuation by one of the standards authorized in
6 this chapter, and for the creation and maintenance of the funds
7 required by its organic law, additional or increased rates of
8 contribution shall be collected from the members to meet the
9 deficiency. The organic law may also provide that each
10 certificate shall be charged with its proportion of any
11 deficiency disclosed by the valuation specified in this chapter
12 with lawful interest thereon.
13 § 4324. Waiver of organic law.
14 Unless authorized by express provision in the organic law of
15 a fraternal benefit society, a subordinate lodge or any of its
16 subordinate officers or members may not, on behalf of the
17 society, waive or modify any of the provisions of the organic
18 law of the society or waive any violation, forfeiture or default
19 thereof.
20 § 4325. Individual liability.
21 An officer or member of any supreme, grand or subordinate
22 body of any fraternal benefit society shall not be individually
23 liable for the payment of any of the benefits provided for in
24 its organic law, but such benefits shall be payable only out of
25 the funds of the society and in the manner provided by its
26 organic law.
27 § 4326. Power to write insurance.
28 (a) General rule.--Every fraternal benefit society holding a
29 certificate of authority under this chapter may provide in its
30 organic law for the payment of death benefits on the lives of
19850H1962B2642 - 543 -
1 members or, upon application of a member, on the lives of the
2 spouse and minor children of a member in the same or separate
3 certificates, for the erection of monuments to mark the graves
4 of its deceased members, and, subject to this chapter, for the
5 grant of benefits of other kinds and character and for the
6 issuance of beneficiary certificates in evidence thereof.
7 (b) Required legend on forms.--This chapter does not prevent
8 a society from using terminology which expresses the intent and
9 purpose of the forms issued to its members, except that in the
10 contracts issued such forms shall include, in conspicuous type
11 on the masthead and on the filing back under the name of the
12 society, the words "A Fraternal Benefit Society."
13 § 4327. Members and beneficiaries.
14 (a) General rule.--Any person may be admitted to beneficial
15 or general or social membership in any fraternal benefit society
16 in such manner and upon such showing of eligibility as the
17 organic law of the society may provide. Any beneficial member
18 may direct any benefit to be paid to such person, entity or
19 interest as may be permitted by the organic law of the society.
20 A beneficiary shall not have or obtain any vested interest in
21 the benefit until the benefit has become due and payable in
22 conformity with the provisions of the contract of membership.
23 Every member shall have full right to change his beneficiary in
24 accordance with the organic law of the society.
25 (b) Minimum age for admission.--Any society may admit to
26 beneficial membership any person not less than 16 years of age.
27 Minors who have attained 16 years of age may make all necessary
28 contracts and assume all necessary obligations to become
29 members. This chapter does not prevent any society from
30 accepting general or social members.
19850H1962B2642 - 544 -
1 § 4328. Benefits upon lives of children.
2 (a) General rule.--Any fraternal benefit society holding a
3 certificate of authority under this chapter may provide in its
4 organic law, in addition to other benefits provided for therein,
5 for insurance or annuities, or both, upon the lives of children
6 at any age, upon the application of an adult person, as the
7 organic law of the society may provide. The society may organize
8 and operate branches for such children. Membership and
9 initiation in local lodges shall not be required of such
10 children, nor shall they have any voice in the management of the
11 society.
12 (b) Contributions.--The contributions to be made with
13 respect to benefits to be provided under subsection (a) shall be
14 based upon the "Standard Industrial Mortality Table," or the
15 "English Life Table Number Six," the "American Experience Table"
16 and Craig's Extension thereof, or such other mortality table as
17 may be approved by the commissioner, with an assumed rate of
18 interest not exceeding 4% a year.
19 (c) Reserve requirements.--Any society granting benefits
20 under this section shall maintain, with respect to all such
21 benefits, the reserve required by the standard of mortality and
22 interest adopted by the society for computing contributions as
23 provided in subsection (b).
24 (d) Powers.--Subject to this chapter, a society may provide
25 for means of enforcing payment of contributions, designation of
26 beneficiaries, and changing such designations and, in all other
27 respects, for the regulation, government and control of such
28 benefits and all rights, obligations and liabilities incident
29 thereto.
30 § 4329. Beneficiary certificates.
19850H1962B2642 - 545 -
1 (a) Certificates to specify amount and conditions.--Every
2 beneficiary certificate issued by a fraternal benefit society
3 shall specify the amount of benefits furnished thereunder and
4 shall provide that the beneficiary certificate, articles of
5 incorporation or, if a voluntary association, the articles of
6 the association, the other provisions of the organic law of the
7 society, the application for membership, and medical examination
8 or health certificate, signed by the applicant, and all
9 amendments to each thereof, shall constitute the agreement
10 between the society and the member. Copies of those papers
11 certified by the secretary of the society or corresponding
12 officer shall be received in evidence of the terms and
13 conditions thereof. Any amendments to the articles of
14 incorporation or articles of association, if a voluntary
15 association, and other provisions of the organic law, made or
16 enacted subsequent to the issuance of the beneficiary
17 certificates, shall bind the member and his beneficiaries and
18 shall control the agreement in force at the time of the
19 application for membership.
20 (b) Other benefits permitted.--Any society holding a
21 certificate of authority under this chapter may enter into
22 contracts in such other forms and granting such benefits as its
23 organic law authorizes, when it shall provide for the
24 accumulation and maintenance of assets required for the payment
25 of such benefits, when valued upon an interest basis not
26 exceeding 4% a year, and mortality standards adopted by it
27 within the limitations provided in this chapter or, at the
28 option of the society, in the provisions of this title relating
29 to life insurance companies. Any certificates issued on a
30 renewable term basis shall set forth clearly thereon the
19850H1962B2642 - 546 -
1 successive future rates of contribution to be paid thereunder.
2 (c) Approval of commissioner.--A society shall not issue,
3 sell or dispose of any certificate or contract providing
4 benefits to its membership in this Commonwealth, or use
5 applications, riders or endorsements in connection therewith,
6 until the forms thereof have been approved by the commissioner.
7 § 4330. Liens against certificates.
8 Any fraternal benefit society may provide for the acceptance
9 of liens against benefit certificates, with interest at not less
10 than 4% a year, in lieu of cash payments, but the total of such
11 liens against any benefit certificate shall not exceed its share
12 of the accumulation thereunder. Any society collecting a level
13 rate of contribution under any of its benefit certificates,
14 based upon any table of mortality allowed for valuation purposes
15 in this chapter, may grant to members holding the certificates
16 extended and paid up protection or such withdrawal equities as
17 may be allowed under its organic law. These grants or privileges
18 shall not exceed in value the portion of the accumulations to
19 the credit of the certificate at the time the grant or privilege
20 is allowed.
21 § 4331. Attachment of benefits.
22 Money or other benefit, charity, relief or aid to be rendered
23 by any fraternal benefit society shall not be liable to
24 attachment, garnishment or other process or to be applied by any
25 legal or equitable process or operation of law to pay any debt
26 or liability of a member or beneficiary or any other person who
27 may have a right thereunder, either before or after payment.
28 § 4332. Notice required for agreement with beneficiary.
29 A contract between a member of a fraternal benefit society
30 and his beneficiary that the beneficiary or any person for him
19850H1962B2642 - 547 -
1 shall pay the assessment and dues, or either of them, shall not
2 give the beneficiary a vested right in the benefit certificate
3 or in the benefits, or deprive the member of the right to change
4 the name of the beneficiary or revoke a certificate issued by
5 the society. A copy in writing of any contract between the
6 member and a beneficiary shall be delivered to the home office
7 of the society immediately; if the copy of the contract is not
8 so delivered and the society in good faith pays the named
9 beneficiary, the society shall be released from any further
10 liability.
11 § 4333. Beneficiary predeceasing a member.
12 If any beneficiary under a certificate dies before the
13 member, and no new designation is made by the member, and the
14 organic law of the fraternal benefit society makes no provision
15 for this contingency, the benefits under the certificate shall
16 be paid to the surviving beneficiary. If none of the
17 beneficiaries named in the certificate survives the member, the
18 benefits shall be paid to the personal representative of the
19 deceased member to be distributed to the persons entitled to the
20 personal estate of the member.
21 § 4334. Disappearance of member.
22 A proceeding in any court whereby a person is adjudged a
23 presumed decedent pursuant to statute shall not be binding upon
24 any fraternal benefit society, nor shall such a finding by any
25 court be offered in evidence as evidence of the death of the
26 presumed decedent in a later proceeding against the society,
27 unless 30 days' notice of the proceeding, including notice of
28 the time and place of any hearing, is given to the home office
29 of the society and opportunity is given to the society to appear
30 in the proceeding as intervenor.
19850H1962B2642 - 548 -
1 § 4335. Exemption of societies paying accident benefits only.
2 Any fraternal benefit society organized and incorporated
3 prior to May 20, 1921, which provides for benefits in case of
4 death or disability resulting solely from accidents, but which
5 does not obligate itself to pay death or sick benefits
6 generally, shall be exempt from the provisions of this chapter
7 requiring valuation of benefit fund obligations and requiring
8 the certificate to specify the amount of benefit.
9 SUBCHAPTER D
10 FINANCIAL MATTERS
11 Sec.
12 4341. Funds and investments.
13 4342. Annual statement.
14 4343. Valuation report.
15 4344. Accumulation and tabular bases of valuation.
16 4345. Valuation of noncancelable health and accident
17 benefits.
18 § 4341. Funds and investments.
19 (a) General rule.--Any fraternal benefit society may create,
20 maintain, invest, disburse and apply emergency, surplus or other
21 funds, consistent with the purposes for which the society is
22 organized, including hospital and health, home, thrift, employee
23 pension, patriotic, educational and relief or other funds, in
24 accordance with its organic law. Unless otherwise provided in
25 the organic law, the funds shall be held, invested and disbursed
26 for the use and benefit of the society, and no member or
27 beneficiary shall have or acquire individual rights therein or
28 become entitled to any apportionment or the surrender of any
29 part thereof. All domestic societies issued a certificate of
30 authority or foreign societies admitted shall be completely
19850H1962B2642 - 549 -
1 solvent, according to the valuation requirements of this
2 subchapter.
3 (b) Beneficial reserves.--The funds from which benefits
4 shall be paid and the funds from which expenses of the society
5 shall be defrayed shall be derived from regular monthly or other
6 periodic rates of contribution, received by the society, and
7 accretions of the funds as apportioned in accordance with the
8 organic law of the society. Funds set aside for the payment of
9 benefits shall not be used for expenses or other purposes,
10 except that any society having admitted assets, as shown by its
11 last annual statement filed with the commissioner, in excess of
12 its total liabilities, including its required reserves computed
13 on a net tabular basis, may transfer or allocate the excess
14 insurance funds to the expense or other funds of the society, in
15 accordance with its organic law.
16 (c) Consolidation of funds.--Any society having admitted
17 assets, as shown by its last annual statement filed with the
18 commissioner, in excess of its total liabilities, including its
19 required reserves computed on a net tabular basis, not lower
20 than the American Experience Table of Mortality, with an
21 interest rate of 3.5%, may, in accordance with its organic law,
22 provide for the consolidation of its various funds and may
23 report its transactions accordingly if no expenses will be
24 incurred that would impair the reserve base which it is using.
25 (d) Permitted investments.--Except as otherwise authorized
26 by this section, every domestic society shall invest its funds
27 only in securities and in the manner permitted by this title for
28 the investment of the funds of life insurance companies and in
29 securities of Federal savings and loan associations or of other
30 institutions to the extent that such investment is guaranteed by
19850H1962B2642 - 550 -
1 the Federal Government. Unless the approval of the commissioner
2 is first obtained in writing, a domestic society shall not keep
3 or maintain, at a place outside this Commonwealth, any
4 securities or other assets, except those necessary for the
5 collection of current dues and for enabling it to comply with
6 the law of any other jurisdiction for the purpose of doing
7 business therein.
8 § 4342. Annual statement.
9 Every fraternal benefit society shall, on or before March 1
10 of each year, file with the commissioner, in such form as he may
11 require, a statement, verified by its president and secretary,
12 or corresponding officers, of its transactions for the preceding
13 calendar year, and of its condition and standing at the end of
14 the year, and shall include therein all accrued liability under
15 unpaid claims. It shall also, within 30 days after requested by
16 the commissioner, render such additional statement or statements
17 concerning its affairs and financial conditions as the
18 commissioner may require.
19 § 4343. Valuation report.
20 (a) General rule.--In addition to the annual statement
21 required under section 4342 (relating to annual statement), each
22 fraternal benefit society shall, on or before April 1 of each
23 year, report to the commissioner a valuation of its benefit fund
24 obligations in force at the end of the preceding calendar year.
25 The report of valuation shall show as contingent liabilities the
26 present midyear value of the promised benefits provided in the
27 organic law of the society under certificates then subject to
28 valuation, at not more than 4% interest, less such portion
29 thereof as has been assumed by other associations or companies,
30 and as contingent assets the present midyear value, at the same
19850H1962B2642 - 551 -
1 rate of interest, of such future net contributions provided in
2 the organic law of the society as are actually collected.
3 (b) Alternate rule.--In lieu of the valuation provided for
4 in subsection (a), any society may show the net value of its
5 benefit fund obligations subject to valuation at not more than
6 4% interest. The net value, when computed in the case of monthly
7 contributions, may be the mean of the terminal value for the end
8 of the preceding and of the current certificate years, from
9 which tabular values shall be deducted the portion thereof
10 assumed by other associations or companies.
11 (c) Certification.--Each valuation report shall be certified
12 by a competent accountant or actuary or, at the request and
13 expense of the society, verified by the actuary of the
14 department of insurance of the jurisdiction of incorporation of
15 the society. Every valuation report shall set forth clearly and
16 fully the mortality and interest basis and the method of
17 valuation.
18 (d) Pre-1952 standard.--The minimum standard of valuation
19 for death benefit fund obligations issued prior to January 1,
20 1952, shall be the National Fraternal Congress Table of
21 Mortality or, at the option of the society, any other standard
22 table or a table based upon the experience of the society over
23 at least 20 years and covering not less than 100,000 lives, with
24 an interest assumption of not more than 4%.
25 (e) Post-1951 standard.--The minimum standard of valuation
26 for death benefit fund obligations issued on and after January
27 1, 1952, shall be the American Experience Table of Mortality,
28 with an interest assumption of not more than 3.5%.
29 (f) Disability benefits.--Any society providing for
30 cancelable disability benefits shall keep a separate account of
19850H1962B2642 - 552 -
1 such benefits in its valuation report, and shall establish and
2 maintain a reserve of one-half of the periodic contribution for
3 such benefits. On and after January 1, 1952, the minimum basis
4 for contributions and reserves for disability benefits and
5 double indemnity benefits shall be the minimum basis required of
6 legal reserve life insurance companies for such benefits.
7 (g) Existing nonforfeiture benefits.--This section does not
8 require a society which has adopted a procedure for
9 strengthening its reserve to modify any existing nonforfeiture
10 benefits.
11 (h) Publication of valuation report.--A report of the
12 valuation, with such explanations as the society believes
13 advisable, shall be printed and mailed to each beneficial member
14 of the society not later than July 1 of each year, or may
15 instead be published in the official paper of the society, if
16 the issue containing the report is mailed to each beneficial
17 member of the society.
18 § 4344. Accumulation and tabular bases of valuation.
19 (a) General rule.--In lieu of the valuation required by
20 section 4343 (relating to valuation report), any fraternal
21 benefit society may value its certificates on a basis,
22 designated in this section as the "accumulation basis," by
23 crediting each member with the net amount contributed for each
24 year and with interest, at approximately the net rate earned,
25 and by charging him with his share of the losses for each year,
26 designated in this section as the "cost of insurance," and
27 carrying the balance, if any, to his credit. The charge for the
28 cost of insurance may be according to the actual experience of
29 the society, as applied to a table of mortality recognized by
30 this title, and shall take into consideration the amount at risk
19850H1962B2642 - 553 -
1 during each year, which shall be the amount payable at death,
2 less the credit to the member.
3 (b) Initial valuation.--Unless specifically provided in the
4 organic law of the society, a charge shall not be carried
5 forward from the first valuation under this section against any
6 member, for any past share of losses exceeding the contributions
7 and credit. If after the first valuation the share of losses of
8 any member for any year exceeds his credit, including the
9 contributions for the year, the contributions shall be increased
10 to cover his share of the losses. Any such excess share of
11 losses chargeable to any member may be paid out of a fund or
12 contributions especially created or required for this purpose.
13 (c) Tabular basis.--Any member may transfer to any plan
14 adopted by the society, with net rates on which tabular reserves
15 are maintained, and, upon the transfer, may take such
16 application to his credit as provided in the organic law of the
17 society. Certificates issued, rerated or readjusted on a basis
18 providing for adequate rates, with adequate reserves to mature
19 the certificates upon assumption for mortality and interest,
20 recognized by this title, shall be valued on such basis,
21 designated in this section as the "tabular basis." If on the
22 first valuation under this section a deficiency in reserve shall
23 be shown for the certificate, the certificate shall be valued on
24 the accumulation basis.
25 (d) Accumulation and tabular bases.--Whenever, in any
26 society having members upon the tabular basis and upon the
27 accumulation basis, the total of all costs of insurance provided
28 for any year is insufficient to meet the actual death and
29 disability losses for the year, the deficiency may be met for
30 the year from the available funds, after setting aside all
19850H1962B2642 - 554 -
1 credits in the reserve, or from increased contributions or by an
2 increase in the number of assessments, applied in the society as
3 a whole or to classes of members as specified in its organic
4 law. Savings from a lower amount of death losses may be returned
5 in a similar manner as specified by its organic law.
6 (e) Segregation of assets.--If the organic law of the
7 society so provides, the assets representing the reserves of any
8 separate class of members may be carried separately for the
9 class, and the required reserve accumulation of the class shall
10 not thereafter be merged with the assets of other classes of the
11 society without the approval of the commissioner.
12 (f) Table required.--A table, showing the credits to
13 individual members for each year and age of entry and showing
14 opposite these credits the tabular reserve required in the whole
15 life or other plan of insurance specified in the contract,
16 according to assumptions for mortality and interest recognized
17 under this title and adopted by the society, shall be filed by
18 the society with each annual statement and shall be furnished to
19 each member before July 1 of each year.
20 (g) Statement in lieu of table.--In lieu of the statement
21 required by subsection (f), there may be furnished to each
22 member before July 1 of each year a statement giving the credit
23 for the member and giving the tabular reserve and level rate
24 required for the transfer carrying out the plan of insurance
25 specified in the contract. A table or statement need not be made
26 or furnished where the reserves are maintained on the tabular
27 basis. For this purpose individual bookkeeping accounts for each
28 member shall not be required, and all calculations may be made
29 by actuarial methods.
30 (h) No individual interest in reserves.--This section does
19850H1962B2642 - 555 -
1 not prohibit the maintenance of such surplus over and above the
2 credits on the accumulation basis and the reserves on the
3 tabular basis as any society may provide under its organic law,
4 or give any member any right or claim to any such reserve or
5 credit, other than as provided in its organic law.
6 (i) Elimination of reserve deficiency.--If the valuation of
7 the certificates under this section shows that the present value
8 of future net contributions, together with the admitted assets,
9 is less than the present value of the promised benefits and
10 accrued liabilities, the society shall either collect additional
11 assessments or increase the rates of contribution from the
12 members to meet the deficiency or classify its members according
13 to the adequacy of the rates they are contributing and charge
14 each class with its proportion of any deficiency disclosed by
15 the valuation.
16 § 4345. Valuation of noncancelable health and accident
17 benefits.
18 (a) General rule.--The commissioner shall each year value or
19 require every fraternal benefit society to value the reserve
20 liabilities, as of the end of the preceding calendar year, of
21 the society with respect to all of its noncancelable health and
22 accident benefits issued on and after January 1, 1950.
23 (b) Standards.--The legal minimum standard for computing the
24 active life reserve, including the unearned premium reserve of
25 the noncancelable health and accident certificates issued on and
26 after January 1, 1950, shall be based on the Disabled Life
27 Conference Modification of Class III Disability Table, with
28 interest not to exceed 3.5% on the full preliminary term basis.
29 The reserve under such certificates shall also be based on that
30 table, except that for claims of less than 27 months' duration,
19850H1962B2642 - 556 -
1 the reserve may be taken as equivalent to the prospective claim
2 payment, in the case of short term contracts, or to 3 1/2 times
3 the elapsed period of disability, in the case of unlimited
4 contracts. In the case of unlimited contracts, the reserve shall
5 not be less than the equivalent of seven weeks' claim payments.
6 (c) Modification of standards.--The commissioner may modify
7 the application of the requirements of this section to
8 certificates or to claims arising under certificates in
9 accordance with the waiting period contained in the certificates
10 and in accordance with any limitation as to the time for which
11 indemnity is payable, or in such other manner as is warranted.
12 The commissioner may, whenever deemed prudent for the protection
13 of certificate holders in this Commonwealth, vary the standard
14 in particular cases.
15 (d) Foreign or alien societies.--The commissioner may, with
16 respect to any foreign or alien society, accept a life valuation
17 of the insurance supervising official of the jurisdiction in
18 which the society is incorporated or domiciled, if the valuation
19 is made upon a basis and according to standards producing an
20 aggregate reserve not less than as required under this section.
21 (e) Treatment of subordinate lodges.--This section does not
22 apply to the subordinate lodges of societies, as such, in cases
23 where the subordinate lodges provide for health and accident
24 benefits independent of the supreme body.
25 (f) Definition.--As used in this section the term
26 "noncancelable health and accident benefits" means benefits
27 against disability resulting from a natural condition or bodily
28 injury, under a certificate under which the society does not
29 have the option to cancel or otherwise terminate the certificate
30 at or after the expiration of one year from its effective date.
19850H1962B2642 - 557 -
1 SUBCHAPTER E
2 CONVERSION TO MUTUAL LIFE INSURANCE COMPANY
3 Sec.
4 4351. Power to effect conversion.
5 4352. Proceedings before commissioner.
6 4353. Organization of company.
7 4354. Rights and liabilities of converted societies.
8 § 4351. Power to effect conversion.
9 Any domestic fraternal benefit society, which has outstanding
10 death benefit certificates or certificates of life insurance in
11 an amount of more than $1,000,000 issued to not less than 400
12 members, which has a surplus of more than $200,000, which is
13 subject to supervision by the commissioner, and which does not
14 operate an orphanage, sanatorium, hospital, home for the aged or
15 similar institution, may convert itself into a mutual life
16 insurance company in the manner provided, and subject to the
17 provisions, in this subchapter.
18 § 4352. Proceedings before commissioner.
19 (a) Proposal of plan.--The board of directors of the
20 domestic fraternal benefit society shall, by resolution, adopt a
21 plan of conversion providing for the conversion of the society
22 into a mutual life insurance company.
23 (b) Transmission of plan to members.--A copy of the plan
24 shall be sent by mail to every member of the society, together
25 with a form on which the member may express his dissent from the
26 plan and a notice that unless the dissent of the member is
27 received at the home office of the society within 30 days from
28 the date of the notice, the assent of the member will be
29 presumed. The notice and form shall be mailed in an envelope
30 bearing the return address of the society and a direction that
19850H1962B2642 - 558 -
1 it be returned to the society if undelivered to the addressee
2 within ten days of the date of mailing. Undelivered notices
3 shall be counted as dissents.
4 (c) Adoption by members.--Unless a majority of the members
5 dissent within the 30-day period, the society may file with the
6 commissioner the plan and articles of incorporation as a mutual
7 life insurance company, which shall be in duplicate and shall
8 meet the requirements for the incorporation of mutual life
9 insurance companies incorporated under Chapter 33 (relating to
10 incorporation of insurance companies), except that the death
11 benefit certificates or certificates of life insurance in force
12 and the surplus shall be in lieu of the applications for
13 insurance and the guarantee fund required in the case of
14 incorporation under that statute. The articles of incorporation
15 shall be signed by a majority of the directors of the society.
16 (d) Standards for approval of conversion.--The plan and
17 articles shall be approved by order of the commissioner only if
18 the commissioner finds and determines that they comply with this
19 subchapter and that the society is financially qualified to be a
20 mutual life insurance company as in other cases.
21 (e) Procedure before departments.--The proceedings before
22 the department shall be subject to the provisions of section
23 4311(e) (relating to preliminary certification). If the
24 commissioner approves the plan and articles, it shall deliver
25 the plan and articles with its written approval to the
26 Department of State. If all the taxes, fees and charges required
27 by law have been paid and if the name of the proposed company
28 continues to be reserved or is available on the records of the
29 Department of State, the receipt of the plan and articles by the
30 Department of State with the written approval of the
19850H1962B2642 - 559 -
1 commissioner shall constitute filing of the plan and articles in
2 the Department of State as of the date and time of receipt or as
3 of any later date and time specified by the commissioner. The
4 Department of State shall immediately make and retain a copy of
5 the plan and articles and return the original plan and articles
6 to the society. The filing of the articles in the Department of
7 State shall have the same effect as the filing of approved
8 articles of association for a mutual life insurance company
9 under this title, the issuance by the Governor of letters patent
10 and the recording of the articles and letters patent in the
11 proper office for the recording of deeds.
12 (f) Judicial review.--Orders of the commissioner upon the
13 question of the approval of the plan and articles shall be
14 subject to judicial review as provided by law.
15 § 4353. Organization of company.
16 (a) General rule.--Upon the filing of the plan and articles
17 in the Department of State, the fraternal benefit society shall
18 be converted into a mutual life insurance company and shall
19 continue to be vested with all of its assets, subject to the
20 payment of all of its liabilities, including pro rata refunds of
21 contributions or dues on any certificates which it no longer has
22 the right to issue. The company, in the name of the society,
23 shall advertise the fact of the conversion one time in a
24 newspaper of general circulation in the county in which it
25 maintained its principal or registered office and in the capital
26 of any other jurisdiction in which it was authorized to do
27 business. This advertisement shall include a statement that any
28 dissenting certificate holder who desires to cancel his
29 certificate may do so by delivering it on or before a specified
30 date, which shall not be later than six months after the date of
19850H1962B2642 - 560 -
1 the filing of the articles of incorporation in the Department of
2 State, to the company and receive the pro rata unearned dues or
3 contributions for the certificate and the nonforfeiture value of
4 the certificate. A copy of this advertisement shall be mailed at
5 the same time by the company to each dissenting certificate
6 holder at his address upon the records of the society.
7 (b) Initial examination.--The company shall satisfy the
8 commissioner, after examination, that it has paid all amounts
9 due to any dissenting certificate holders and all liabilities on
10 certificates which it is required to cancel.
11 § 4354. Rights and liabilities of converted societies.
12 Mutual life insurance companies converted under this
13 subchapter shall have all the rights and privileges and shall be
14 subject to all the requirements of mutual life insurance
15 companies incorporated under Chapter 33 (relating to
16 incorporation of insurance companies) but shall have no rights
17 or privileges beyond those applicable to other domestic mutual
18 life insurance companies.
19 SUBCHAPTER F
20 FOREIGN SOCIETIES
21 Sec.
22 4361. Licensure of authorized societies.
23 4362. Application for admission to do business.
24 4363. Admission of certain societies.
25 4364. Acceptance of foreign examinations.
26 4365. Revocation of authority.
27 4366. Procedure before commissioner.
28 § 4361. Licensure of authorized societies.
29 Each authorized foreign or alien fraternal benefit society
30 authorized shall apply to the commissioner for the renewal of
19850H1962B2642 - 561 -
1 its license by April 1 of each year. Every license for which a
2 timely application for renewal has been made shall continue in
3 effect until a new license is issued or specifically refused. A
4 duly certified copy or duplicate of the license shall be prima
5 facie evidence that the licensee is a society within the meaning
6 of this chapter, and that it may invest its assets as required
7 by the law of the jurisdiction where it is organized. Upon
8 compliance with the provisions of this chapter applicable to
9 foreign or alien societies, the license shall be renewed.
10 § 4362. Application for admission to do business.
11 (a) Procedure.--A foreign fraternal benefit society shall
12 not do any business in this Commonwealth without a license from
13 the commissioner. The society may be licensed upon filing the
14 following with the commissioner:
15 (1) A duly certified copy of its charter or articles of
16 association.
17 (2) A copy of the other provisions of its organic law
18 certified by its secretary or corresponding officer.
19 (3) A copy of the application for a certificate of
20 authority filed in the Department of State pursuant to 15
21 Pa.C.S. § 8124 (relating to application for a certificate of
22 authority) and the certificate of authority issued thereon.
23 (4) A statement of its business verified by its
24 president and secretary, or corresponding officers, in the
25 form required by the commissioner, and duly confirmed by an
26 examination made by the supervising insurance official of its
27 domiciliary jurisdiction or another jurisdiction satisfactory
28 to the commissioner.
29 (5) A certificate from the proper official in its
30 domiciliary jurisdiction that the society is legally
19850H1962B2642 - 562 -
1 incorporated or organized.
2 (6) A copy of its certificate of membership, stating
3 that benefits are provided for by periodical or other
4 payments by persons holding similar certificates.
5 (7) A valuation report of its benefit fund obligations
6 in force at the end of the preceding calendar year, in the
7 manner required by Subchapter D (relating to financial
8 matters).
9 (8) Such other information as the commissioner may deem
10 necessary to properly disclose the business and mode of
11 operation of the applicant.
12 (b) Standards.--Every foreign society desiring admission to
13 this Commonwealth shall have the qualifications required of
14 domestic societies and have its benefit fund obligations valued
15 upon a valuation by any one of the standards authorized in
16 Subchapter D and shall have its assets invested as required by
17 the law of the jurisdiction in which it is incorporated or
18 organized.
19 (c) Existing contracts.--This section and section 4361
20 (relating to licensure of authorized societies) do not prevent
21 any unlicensed foreign society from continuing in good faith all
22 contracts made in this Commonwealth during the time the society
23 was authorized to do business therein.
24 § 4363. Admission of certain societies.
25 Any fraternal benefit society organized prior to May 20,
26 1921, and operating in this Commonwealth prior to that date
27 which limits its membership to the members of one or more
28 fraternal orders, which members are required to have been
29 proposed, elected by ballot, initiated and obligated through
30 subordinate lodges, under prescribed ritualistic ceremonies,
19850H1962B2642 - 563 -
1 shall be regarded as complying with the requirements of this
2 chapter as to subordinate lodges and the admission of members
3 therein and shall, upon compliance with all other provisions of
4 this chapter, be deemed a fraternal benefit society operating on
5 the lodge system and entitled to a license under this chapter.
6 § 4364. Acceptance of foreign examinations.
7 The commissioner may, in lieu of the examination otherwise
8 required by section 4315 (relating to examination of societies),
9 accept the examination of the regulatory authority of the
10 domicile of the foreign fraternal benefit society.
11 § 4365. Revocation of authority.
12 When the commissioner on investigation is satisfied that any
13 foreign fraternal benefit society doing business under this
14 chapter has exceeded its powers or has failed to comply with any
15 provision of this chapter or is conducting business
16 fraudulently, the commissioner may revoke the authority of the
17 society to do business in this Commonwealth.
18 § 4366. Procedure before commissioner.
19 (a) General rule.--Before the commissioner refuses to
20 license any foreign fraternal benefit society or revokes or
21 suspends its authority to do business in this Commonwealth, it
22 shall furnish to the society a statement of its reasons for the
23 proposed refusal, revocation or suspension and give notice of a
24 time and place of hearing, at which the society may show cause
25 why a license should be granted to it or why the license granted
26 to it should not be revoked or suspended, as the case may be.
27 (b) Discovery.--Upon request made to the commissioner by
28 such foreign society, the commissioner shall issue subpoenas to
29 summon such witnesses as the society may desire. Upon the filing
30 of a verified petition by the society showing that the testimony
19850H1962B2642 - 564 -
1 of the persons named therein is competent and relevant to the
2 issues to be heard by the commissioner and that the persons are
3 outside this Commonwealth, the department shall appoint a person
4 qualified by law to administer oaths, to take the testimony of
5 the persons at the places specified in the petition where the
6 testimony may be obtained. The testimony shall be taken upon
7 oral examination and cross examination or upon written
8 interrogatories and cross interrogatories, as the commissioner
9 determines, and when so taken shall be reduced to writing and
10 certified to the commissioner by the person appointed to take
11 the testimony and shall be made a part of the record of the
12 hearing. The cost of issuing the subpoenas shall be paid to the
13 commissioner by the society.
14 (c) Notice.--Any notice of hearing required by this chapter
15 with respect to a foreign society shall be sufficient as to
16 delivery if sent by registered mail, addressed to the society or
17 to its president at its principal office in its domiciliary
18 jurisdiction.
19 (d) Record.--A complete record shall be kept of the hearing.
20 All testimony taken at the hearings shall be reported
21 stenographically, and the completeness and accuracy of the
22 record shall be certified by the commissioner.
23 (e) Written decision.--All decisions, rulings and findings
24 of the commissioner made under this chapter with respect to a
25 foreign society, together with a statement of its reasons
26 therefor, shall be made in writing and filed with the
27 commissioner, who shall serve a copy thereof upon the society by
28 registered mail addressed to the society or its president at its
29 principal office in its domiciliary jurisdiction.
30 (f) Judicial review.--Orders of the department upon an
19850H1962B2642 - 565 -
1 application for a license by any foreign fraternal benefit
2 society or in any proceeding relating to the suspension or
3 revocation of its authority to do business in this Commonwealth
4 shall be subject to judicial review as provided by law.
5 SUBCHAPTER G
6 CRIMES AND PENALTIES
7 Sec.
8 4371. Issuing unapproved contracts or certificates.
9 4372. Failure to file annual statements.
10 4373. Misrepresentations.
11 4374. Soliciting memberships in unlicensed society.
12 4375. Other violations of chapter.
13 § 4371. Issuing unapproved contracts or certificates.
14 (a) Criminal penalty.--Any person who either as principal or
15 agent issues or causes to be issued any contract or certificate
16 of insurance, application, rider, endorsement or similar
17 document in this Commonwealth contrary to section 4329(c)
18 (relating to beneficiary certificates) commits a misdemeanor of
19 the third degree.
20 (b) Administrative penalty.--Upon satisfactory evidence of a
21 violation described in subsection (a), the commissioner may
22 pursue any one or more of the following courses of action:
23 (1) Suspend or revoke the license of the offending
24 person.
25 (2) Refuse for a period, not to exceed one year, to
26 issue a new license to the person.
27 (3) Impose a civil penalty of not more than $2,000 for
28 each act in violation of this section, to be recovered by an
29 action of assumpsit instituted in the name of the
30 Commonwealth.
19850H1962B2642 - 566 -
1 When the commissioner takes action under paragraph (1) or (2),
2 the final order of the commissioner shall be subject to judicial
3 review as provided by law.
4 § 4372. Failure to file annual statements.
5 Any fraternal benefit society which fails to file its annual
6 statement or other required statements in the form or within the
7 time provided under this chapter shall pay a sum determined by
8 the commissioner, not to exceed $250, for each day during which
9 this default continues, and, upon notice by the commissioner,
10 the authority of the society to do new business shall be
11 suspended while the default continues.
12 § 4373. Misrepresentations.
13 (a) Defrauding society.--Any officer, member or examining
14 physician of any fraternal benefit society or other person who
15 knowingly or willfully makes any false or fraudulent statement
16 or representation in or with the reference to any application
17 for membership, or for the purpose of obtaining money from or
18 benefit in any society, commits a misdemeanor of the third
19 degree.
20 (b) Interfering with business relationships.--Any person who
21 publishes or communicates or causes to be published or
22 communicated any false statement or rumor concerning any society
23 for the purpose of inducing any member to cancel his certificate
24 therein or withdraw therefrom or with the intent to lessen the
25 value of any such certificate, commits a misdemeanor of the
26 third degree.
27 § 4374. Soliciting memberships in unlicensed society.
28 Any person who solicits membership for, or in any manner
29 assists in procuring membership in any fraternal benefit society
30 not authorized to do business in this Commonwealth, commits a
19850H1962B2642 - 567 -
1 misdemeanor of the third degree. Any society which violates the
2 provisions of this section shall be denied by the commissioner a
3 license or right to do business in this Commonwealth.
4 § 4375. Other violations of chapter.
5 Any fraternal benefit society or other association or any
6 officer, agent or employee of a society or association or any
7 other person neglecting or refusing to comply with or violating
8 any of the provisions of this chapter, the penalty for which
9 refusal or violation is not specified, commits a misdemeanor of
10 the third degree.
11 SUBCHAPTER H
12 REGULATION OF BENEFICIAL SOCIETIES
13 Sec.
14 4381. General regulation.
15 § 4381. General regulation.
16 All beneficial societies or associations not subject to
17 regulation under this chapter, transacting any class of
18 insurance, shall file with the commissioner copies of their
19 charter, constitution and laws and shall annually make a report
20 in such form as the commissioner requires, showing their
21 condition and standing at the end of the preceding calendar
22 year, and their transactions for that year. The commissioner may
23 at any time make an examination of the books and accounts of any
24 such society or association.
25 CHAPTER 45
26 FRATERNAL BENEFIT SOCIETY CODE OF 1977
27 Subchapter
28 A. General Provisions
29 B. Organization and Corporate Operations
30 C. Benefits and Beneficiaries
19850H1962B2642 - 568 -
1 D. Certificates
2 E. Accident, Health and Disability Insurance Contracts
3 F. Licensure
4 G. Regulation of Operations
5 SUBCHAPTER A
6 GENERAL PROVISIONS
7 Sec.
8 4501. Short title of chapter.
9 4502. Definitions.
10 4503. Exemption from general insurance law.
11 4504. Taxation.
12 4505. Applicability of chapter.
13 § 4501. Short title of chapter.
14 This chapter shall be known and may be cited as the Fraternal
15 Benefit Society Code of 1977.
16 § 4502. Definitions.
17 The following words and phrases when used in this chapter
18 shall have the meanings given to them in this section unless the
19 context clearly indicates otherwise:
20 "Fraternal benefit society" or "society." Any incorporated
21 society, order or lodge, without capital stock, including one
22 exempted under section 4505(a)(2) (relating to applicability of
23 chapter), whether incorporated or not, conducted solely for the
24 benefit of its members and their beneficiaries and not for
25 profit, operated on a lodge system with or without ritualistic
26 form of work, having a representative form of government and
27 which makes provision for the payment of benefits in accordance
28 with this chapter.
29 "Lodge system." With respect to a society having a supreme
30 legislative or governing body and subordinate lodges or branches
19850H1962B2642 - 569 -
1 by whatever name known, into which members are elected,
2 initiated or admitted in accordance with its constitution,
3 bylaws, rituals or rules, which subordinate lodges or branches
4 are required by the bylaws of the society to hold regular
5 meetings at least once in each quarter.
6 "Premium." Any charges, fees, dues or other required
7 contributions by whatever name known.
8 "Representative form of government." With respect to a
9 society, a form of its governance which meets the following
10 standards:
11 (1) The constitution or bylaws provide for a supreme
12 legislative or governing body, composed of representatives
13 elected either by the members or by delegates elected
14 directly or indirectly by the members, together with such
15 other members of the body as are prescribed by the society's
16 constitution and bylaws.
17 (2) The representatives elected constitute a majority in
18 number and have not less than two-thirds of the votes nor
19 less than the votes required to amend its constitution and
20 bylaws.
21 (3) The meetings of the supreme legislative or governing
22 body and the election of officers, representatives or
23 delegates are held at least once every four calendar years.
24 (4) Each benefit member is eligible for election to
25 serve as a delegate to these meetings.
26 (5) The society has a board of directors charged with
27 the responsibility for managing its affairs in the interim
28 between meetings of its supreme legislative or governing
29 body, subject to control by that body and having powers and
30 duties delegated to it in the constitution or bylaws of the
19850H1962B2642 - 570 -
1 society.
2 (6) The board of directors is elected by the supreme
3 legislative or governing body, except in case of filling a
4 vacancy in the interim between meetings of that body.
5 (7) The officers are elected either by the supreme
6 legislative or governing body or by the board of directors.
7 (8) The members, officers, representatives or delegates
8 are not permitted to vote by proxy.
9 § 4503. Exemption from general insurance law.
10 Except as otherwise provided in this chapter, a fraternal
11 benefit society holding a certificate of authority shall not be
12 subject to the other provisions of this title. A statute
13 relating to the business of insurance does not apply to a
14 society unless the statute specifically refers and applies to a
15 society subject to this chapter. To the extent that statutes and
16 regulations are applicable to societies, the terms thereof shall
17 be deemed of no effect to the extent they are inconsistent with
18 the express terms of this chapter.
19 § 4504. Taxation.
20 Every society organized or licensed under this chapter is
21 deemed a charitable and benevolent institution, and all of its
22 funds shall be exempt from all and every state, county,
23 district, municipal and school tax other than taxes on real
24 estate and office equipment.
25 § 4505. Applicability of chapter.
26 (a) General rule.--This chapter does not apply to any of the
27 following:
28 (1) Grand or subordinate lodges of societies, orders or
29 associations now doing business in this Commonwealth which
30 provide benefits exclusively through local or subordinate
19850H1962B2642 - 571 -
1 lodges.
2 (2) Orders, societies or associations which admit to
3 membership only persons engaged in one or more crafts or
4 hazardous occupations, in the same or similar lines of
5 business, insuring only their own members and their families,
6 and the auxiliaries to such orders, societies or
7 associations.
8 (3) Domestic societies which limit their membership to
9 employees of a particular municipal corporation, firm or
10 corporation which provide for a death benefit of not more
11 than $400 or disability benefits of not more than $350 to any
12 person in any one year, or both.
13 (4) Domestic religious, charitable or benevolent
14 societies or associations which provide for a death benefit
15 of not more than $400 or for disability benefits of not more
16 than $350 to any one person in any one year, or both.
17 (b) Coverage extended.--Any society or association described
18 in subsection (a)(3) or (4) which provides for death or
19 disability benefits for which benefit certificates are issued,
20 and any such society or association described in subsection
21 (a)(4) which has more than 1,000 members, is not exempt from
22 this chapter.
23 (c) Prohibition.--A society which is exempt under this
24 section from the requirements of this chapter, except a society
25 described in subsection (a)(2), shall not give or allow, or
26 promise to give or allow, to any person any compensation for
27 procuring new members.
28 (d) Accidental death or disability benefits.--Every society
29 which provides for benefits in case of death or disability
30 resulting solely from accident, and which does not obligate
19850H1962B2642 - 572 -
1 itself to pay death or sick benefits arising from natural
2 causes, is subject to this chapter except that the provisions
3 relating to medical examination, valuations of benefit
4 certificates and incontestability do not apply.
5 (e) Verification of exemptions.--The commissioner may
6 require from any society or association, by examination or
7 otherwise, such information as will enable him to determine
8 whether the society or association is exempt from this chapter.
9 (f) Provisions in other chapters.--The provisions of this
10 chapter prevail over any inconsistent provisions in Chapter 41
11 (relating to beneficial societies) or 43 (relating to Fraternal
12 Benefit Society Code of 1972).
13 SUBCHAPTER B
14 ORGANIZATION AND CORPORATE OPERATIONS
15 Sec.
16 4511. Initial organization.
17 4512. Filing of initial papers with commissioner.
18 4513. Validity of preliminary certificate.
19 4514. Solicitation of members.
20 4515. Examination by commissioner.
21 4516. Exemption.
22 4517. Approval of documents.
23 4518. General corporate powers of societies.
24 4519. Review of orders of commissioner.
25 4520. Classes of membership.
26 4521. Prohibition of activity.
27 4522. Location of offices and meetings.
28 4523. Consolidations and mergers.
29 4524. Amendments to articles of incorporation, constitution
30 and bylaws.
19850H1962B2642 - 573 -
1 4525. Institutions.
2 4526. Personal liability.
3 4527. Waiver.
4 4528. Conversion of society into mutual life insurance
5 company.
6 4529. Reinsurance.
7 § 4511. Initial organization.
8 The organization of a society shall be as provided in this
9 subchapter. Seven or more citizens of the United States, a
10 majority of whom are citizens of this Commonwealth, who desire
11 to form a fraternal benefit society, may make, sign and
12 acknowledge before an officer competent to take acknowledgment
13 of deeds or articles of incorporation, in which the following
14 shall be stated:
15 (1) The proposed corporate name of the society, which
16 shall not so closely resemble the name of any society or
17 insurance company as to be misleading or confusing.
18 (2) The purposes for which it is being formed and the
19 mode in which its corporate powers are to be exercised. The
20 purposes shall not include more liberal powers than are
21 granted by this chapter. Any lawful, social, intellectual,
22 educational, charitable, benevolent, moral, fraternal or
23 religious advantages may be set forth among the purposes of
24 the society.
25 (3) The names and residences of the incorporators and
26 the names, residences and official titles of all the
27 officers, trustees, directors or other persons who are to
28 have and exercise the general control of the management of
29 the affairs and funds of the society for the first year or
30 until the ensuing election at which all such officers shall
19850H1962B2642 - 574 -
1 be elected by the supreme legislative or governing body. This
2 election shall be held not later than one year from the date
3 of the issuance of the permanent certificate.
4 § 4512. Filing of initial papers with commissioner.
5 The articles of incorporation, certified copies of the
6 constitution and rules, copies of all proposed forms of
7 certificates, applications therefor, receipts and circulars to
8 be issued by the society and a bond conditioned upon the return
9 to applicants of the advanced payments if the organization is
10 not completed within one year shall be filed with the
11 commissioner, who may require such further information as is
12 necessary. The bond with sureties approved by the commissioner
13 shall be in an amount, not less than $5,000 nor more than
14 $25,000, required by the commissioner. All documents filed shall
15 be in the English language. If the purposes of the society
16 conform to the requirements of this chapter and all provisions
17 of this chapter have been complied with, the commissioner shall
18 so certify, retain and file the articles of incorporation and
19 furnish the incorporators with a preliminary certificate
20 authorizing the society to solicit members.
21 § 4513. Validity of preliminary certificate.
22 A preliminary certificate granted under this chapter shall
23 not be valid after one year from its date or after such other
24 period, not exceeding one year, as is authorized by the
25 commissioner upon cause shown, unless the 500 applicants
26 required under section 4514 (relating to solicitation of
27 members) have been secured and the organization has been
28 completed as herein provided. The articles of incorporation and
29 all other proceedings thereunder shall become void one year from
30 the date of the preliminary certificate, or at the expiration of
19850H1962B2642 - 575 -
1 the extended period, unless the society completes its
2 organization and receives a certificate of authority to do
3 business within that period.
4 § 4514. Solicitation of members.
5 Upon receipt of a preliminary certificate from the
6 commissioner, the society may solicit members for the purpose of
7 completing its organization, shall collect from each applicant
8 the amount of not less than one regular monthly premium in
9 accordance with its table of premiums as provided by its
10 constitution and bylaws and shall issue to each applicant a
11 receipt for the amount so collected. A society shall not incur
12 any liability other than for the return of such advance premium,
13 nor issue any certificate, nor pay or allow, or offer or promise
14 to pay or allow, any death or disability benefit to any person
15 until:
16 (1) Actual bona fide applications for death benefits
17 have been secured aggregating at least $500,000 on not less
18 than 500 lives.
19 (2) All applicants for death benefits furnish evidence
20 of insurability satisfactory to the society.
21 (3) Certificates of examinations or acceptable
22 declarations of insurability are duly filed and approved by
23 the chief medical examiner of the society.
24 (4) Ten subordinate lodges or branches are established
25 into which the 500 applicants are admitted.
26 (5) There is submitted to the commissioner, under oath
27 of the president, secretary or corresponding officer of the
28 society, a list of the applicants, giving their names,
29 addresses, date each was admitted, name and number of the
30 subordinate branch of which each applicant is a member,
19850H1962B2642 - 576 -
1 amount of benefits to be granted and premiums therefor.
2 (6) A sworn statement of the treasurer or corresponding
3 officer of the society is filed with the commissioner,
4 stating that at least 500 applicants have each paid in cash
5 at least one regular monthly premium, which premiums in the
6 aggregate shall total at least $2,500, all of which shall be
7 credited to the fund or funds from which benefits are to be
8 paid and no part of which may be used for expenses. The
9 advance premiums shall be held in trust during the period of
10 organization, and if the society has not qualified for a
11 certificate of authority within one year, the premiums shall
12 be returned to the applicants.
13 § 4515. Examination by commissioner.
14 The commissioner may make such examination and require such
15 further information as is advisable. Upon presentation of
16 satisfactory evidence that the society has complied with all the
17 provisions of this chapter, he shall issue to the society a
18 certificate to that effect, stating that the society is
19 authorized to transact business under this chapter. The
20 certificate shall be prima facie evidence of the existence of
21 the society on the date of the certificate. The commissioner
22 shall cause a record of the certificate to be made; a certified
23 copy of this record may be given in evidence with like effect as
24 the original certificate.
25 § 4516. Exemption.
26 The provisions of sections 4514 (relating to solicitation of
27 members) and 4515 (relating to examination by commissioner) do
28 not apply to:
29 (1) Any society organized prior to April 6, 1893, under
30 any statute of this Commonwealth which was engaged in doing
19850H1962B2642 - 577 -
1 business in this Commonwealth on that date. Any such society
2 may exercise all the rights conferred by this chapter and all
3 the rights, powers, privileges and exemptions now exercised
4 or possessed by it, under its charter or articles of
5 incorporation or articles of association, and neither its
6 existence as a corporation nor its right to exercise any
7 corporate rights vested in it by virtue of its past
8 incorporation are affected by this chapter. Any corporation
9 described in this paragraph shall be deemed a holder of a
10 certificate of authority issued under this chapter.
11 (2) Any society incorporated under the provisions of the
12 act of April 6, 1893 (P.L.10, No.6), the act of May 20, 1921
13 (P.L.916, No.324) or the act of July 17, 1935 (P.L.1092,
14 No.357), relating to fraternal benefit societies.
15 § 4517. Approval of documents.
16 A society authorized to transact business under this chapter
17 shall not issue any insurance forms, endorsements or riders
18 without first having obtained approval thereof by the
19 commissioner.
20 § 4518. General corporate powers of societies.
21 Every society may adopt a constitution and bylaws for the
22 government of the society, the admission of its members, the
23 management of its affairs and the fixing of the premiums of its
24 members. It may change, alter, add to or amend the constitution
25 and bylaws and do such other acts as are necessary and
26 incidental to carrying into effect the objects and purposes of
27 the society.
28 § 4519. Review of orders of commissioner.
29 Orders of the commissioner upon an application for a
30 certificate of authority under this subchapter shall be subject
19850H1962B2642 - 578 -
1 to judicial review as provided by law.
2 § 4520. Classes of membership.
3 (a) General rule.--Every society authorized to do business
4 in this Commonwealth may admit to membership two classes of
5 members: benefit members and social members by whatever name
6 known. Social members shall not be entitled to any of the
7 benefits prescribed by sections 4531 (relating to benefits) and
8 4532 (relating to benefits on lives of children) and shall have
9 no voice in the management of the insurance affairs of the
10 society. Benefit members may be either adult members or juvenile
11 members. Juvenile members shall have no voice in the management
12 of the insurance affairs of the society.
13 (b) Adult benefit membership.--The society may admit to
14 adult benefit membership any person not less than 15 years of
15 age at the nearest birthday. Any person so admitted prior to
16 attaining the full age of 18 years shall be deemed competent to
17 contract for insurance benefits and to enjoy every right,
18 privilege and benefit provided by any insurance certificate on
19 the minor subject to the limitations contained in section 4532
20 as to the designation of beneficiary.
21 (c) Evidence of insurability.--Every adult benefit member
22 entitled to insurance benefits shall, as to each application for
23 insurance, furnish evidence of insurability acceptable to the
24 society.
25 § 4521. Prohibition of activity.
26 An unincorporated or voluntary association may not transact
27 business in this Commonwealth as a fraternal benefit society
28 unless the association incorporates under this chapter.
29 § 4522. Location of offices and meetings.
30 The principal office of any domestic society shall be located
19850H1962B2642 - 579 -
1 in this Commonwealth. The meetings of its supreme legislative or
2 governing body may be held in any state or country in North
3 America and all business transacted at such meetings shall be as
4 valid as if the meetings were held in this Commonwealth.
5 § 4523. Consolidations and mergers.
6 (a) Right to consolidate or merge.--A domestic society may
7 consolidate or merge with any other society by complying with
8 this section.
9 (b) Statements to be filed.--The societies shall file all of
10 the following with the commissioner:
11 (1) A certified copy of the written contract containing,
12 in full, the terms and conditions of the consolidation or
13 merger.
14 (2) A sworn statement by the president and secretary or
15 corresponding officers of each society showing the financial
16 condition thereof on a date fixed by the commissioner but not
17 earlier than the December 31 next preceding the date of the
18 contract.
19 (3) A certificate of such officers, verified by all of
20 them, that the consolidation or merger has been approved by a
21 two-thirds vote of the supreme legislative or governing body
22 of each society.
23 (4) Evidence that at least 60 days prior to the action
24 of the supreme legislative or governing body of each society,
25 the text of the contract was furnished to all members of each
26 society either by mail or by publication in full in the
27 official organ of each society.
28 (c) Approval by commissioner.--If the commissioner finds
29 that the contract is in conformity with this section, that the
30 financial statements are correct and that the consolidation or
19850H1962B2642 - 580 -
1 merger is just and equitable to the members of each society, he
2 shall issue a certificate stating that he approves the contract.
3 Upon approval, the contract shall be effective unless any
4 society which is a party to the contract is incorporated under
5 the law of any other state. In such event the consolidation or
6 merger shall not become effective until it is approved as
7 provided by the law of that state and a certificate of such
8 approval is filed with the commissioner. If the law of the state
9 contains no such provision, then the consolidation or merger
10 shall not become effective until it is approved by the
11 commissioner of insurance of the state and a certificate of
12 approval filed with the commissioner.
13 (d) Property merged.--Upon the consolidation or merger
14 becoming effective, all the rights and interests of the
15 consolidated or merged societies in every kind of property and
16 things in action pertaining thereto shall be vested in the
17 society remaining after the consolidation or merger without any
18 other instrument. Conveyances of real property may be evidenced
19 by proper deeds, and the title to any real estate or interest
20 therein vested in any of the societies consolidated or merged
21 shall not revert or be impaired by reason of the consolidation
22 or merger, but shall vest in the society remaining after the
23 consolidation or merger.
24 (e) Affidavit as evidence.--The affidavit of any officer of
25 the society or of anyone authorized by it to mail any notice or
26 document, stating that the notice or document has been duly
27 addressed and mailed, shall be prima facie evidence that the
28 notice or document has been furnished the addressee.
29 § 4524. Amendments to articles of incorporation, constitution
30 and bylaws.
19850H1962B2642 - 581 -
1 (a) Power to amend.--A domestic society may amend its
2 articles of incorporation, constitution or bylaws, in accordance
3 with the provisions thereof, by action of its supreme
4 legislative or governing body at any regular or special meeting
5 or, if its articles of incorporation, constitution or bylaws so
6 provide, by referendum. The referendum may be held in accordance
7 with the provisions of its articles of incorporation,
8 constitution or bylaws by the vote of the voting members of the
9 society, by the vote of delegates or representatives of voting
10 members or by the vote of local lodges or branches. An amendment
11 submitted for adoption by referendum shall not be adopted
12 unless, within six months from the date of submission thereof, a
13 majority of all of the voting members of the society have
14 signified their consent to the amendment by one of the methods
15 provided in this subsection.
16 (b) Approval of commissioner.--An amendment shall not take
17 effect until approved by the commissioner, who shall approve the
18 amendment if he finds that it has been adopted and is not
19 inconsistent with any requirement of law or with the character,
20 objects and purposes of the society. Unless the commissioner
21 disapproves the amendment within 60 days after filing, the
22 amendment shall be deemed approved. The approval or disapproval
23 of the commissioner shall be in writing and mailed to the
24 secretary or corresponding officer of the society at its
25 principal office. If the commissioner disapproves the amendment,
26 the reasons shall be stated in the written notice.
27 (c) Copies of changes.--Within 90 days from approval by the
28 commissioner, the amendments or a summary thereof shall be
29 furnished to all members of the society either by mail or by
30 publication in full in the official organ of the society. The
19850H1962B2642 - 582 -
1 affidavit of any officer of the society or of anyone authorized
2 by it to mail any amendments or summary thereof, stating facts
3 which show that these have been addressed and mailed, shall be
4 prima facie evidence that the amendments or summary have been
5 furnished to the addressee.
6 (d) Power of commissioner to review.--The commissioner may
7 review existing articles of incorporation, constitutions and
8 bylaws of domestic fraternal benefit societies at any time in
9 order to determine whether they comply with the minimum
10 standards set forth in this chapter.
11 (e) Foreign or alien societies.--Every authorized foreign or
12 alien society authorized to do business in this Commonwealth
13 shall file with the commissioner a duly certified copy of all
14 amendments of, or additions to, its articles of incorporation,
15 constitution or bylaws within 90 days after their enactment.
16 (f) Printed copies as evidence.--Printed copies of the
17 constitution or bylaws as amended, certified by the secretary or
18 corresponding officer of the society, shall be prima facie
19 evidence of the legal adoption thereof.
20 § 4525. Institutions.
21 (a) Power to own or establish.--A society may create,
22 maintain and operate charitable, benevolent or educational
23 institutions for the benefit of its members and their families
24 and dependents and for the benefit of children insured by the
25 society. For this purpose it may own, hold or lease personal
26 property or real property located in or outside this
27 Commonwealth, with necessary buildings thereon. This property
28 shall be reported in every annual statement but shall not be
29 allowed as an admitted asset of the society.
30 (b) Nonprofit operation.--Maintenance, treatment and proper
19850H1962B2642 - 583 -
1 attendance in any such institution may be furnished free or a
2 reasonable charge may be made therefor, but no such institution
3 shall be operated for profit. The society shall maintain a
4 separate accounting of any income and disbursements under this
5 section and report them in its annual statement. A society shall
6 not own or operate any funeral home or undertaking
7 establishment.
8 § 4526. Personal liability.
9 The officers and members of the supreme, grand or any
10 subordinate body of a society shall not be personally liable for
11 payment of any benefits provided by a society.
12 § 4527. Waiver.
13 The constitution and bylaws of the society shall provide that
14 no subordinate body, subordinate officer or member may waive any
15 of the provisions of the constitution or bylaws of the society.
16 This provision shall be binding on the society and every member
17 and beneficiary of a member.
18 § 4528. Conversion of society into mutual life insurance
19 company.
20 Any domestic fraternal benefit society may be converted and
21 licensed as a mutual life insurance company by compliance with
22 all the applicable financial requirements of this title if the
23 plan of conversion is approved by the commissioner. The plan
24 shall be prepared in writing setting forth all the terms and
25 conditions thereof. The board of directors shall submit the plan
26 to the supreme legislative or governing body of the society at
27 any regular or special meeting thereof, by giving a complete
28 copy of the plan with the notice of such meeting. The notice
29 shall be given as provided in the bylaws of the society for a
30 regular or special meeting of the body, as the case may be. The
19850H1962B2642 - 584 -
1 affirmative vote of two-thirds of all members of the body shall
2 be necessary for the approval of the agreement. A conversion
3 shall not take effect until approved by the commissioner, who
4 may give approval if he finds that the proposed change is in
5 conformity with the requirements of law and not prejudicial to
6 the certificate holders of the society.
7 § 4529. Reinsurance.
8 A domestic society may, by a reinsurance agreement, cede any
9 individual risk or risks in whole or in part to an insurer,
10 other than another society, having the power to make such
11 reinsurance and authorized to do business in this Commonwealth,
12 or if not so authorized, one which is approved by the
13 commissioner. The society may not reinsure in excess of 50% all
14 of its insurance in force without the written permission of the
15 commissioner. It may take credit for the reserves on the ceded
16 risks to the extent reinsured, but no credit shall be allowed as
17 an admitted asset or as a deduction from liability to a ceding
18 society for reinsurance made, ceded, renewed or otherwise
19 becoming effective unless the reinsurance is payable by the
20 assuming insurer on the basis of the liability of the ceding
21 society under the contract reinsured without diminution because
22 of the insolvency of the ceding society.
23 SUBCHAPTER C
24 BENEFITS AND BENEFICIARIES
25 Sec.
26 4531. Benefits.
27 4532. Benefits on lives of children.
28 4533. Benefit options.
29 4534. Beneficiaries.
30 4535. Attachment of benefits.
19850H1962B2642 - 585 -
1 4536. Contract for benefits.
2 § 4531. Benefits.
3 (a) Power to grant benefits.--Any society holding a
4 certificate of authority under this chapter may enter into
5 contracts in such forms and grant such benefits as its bylaws
6 may authorize. In the case of life insurance benefits, the
7 society shall provide for the accumulation and maintenance of
8 assets required for the payment of these benefits, when valued
9 upon an interest basis, not exceeding 4% a year, and mortality
10 standards adopted by it within the limitations provided in this
11 chapter or, at the option of the society, in Chapter 53
12 (relating to life insurance). Any life certificates issued on a
13 renewable term basis shall set forth clearly the successive
14 future rates of contribution to be paid under the contract.
15 (b) Family eligibility.--Benefits may be provided on the
16 lives of members or, upon application of a member, on the lives
17 of the member's family, including the member, the member's
18 spouse and minor children, in the same or separate certificates.
19 § 4532. Benefits on lives of children.
20 (a) General rule.--A society may provide for insurance
21 benefits, annuity benefits or both on the lives of children
22 under the minimum age for adult membership but not greater than
23 18 years of age at the time of application therefor, upon the
24 application of some adult person, as its bylaws or rules may
25 provide, which benefits shall be in accordance with section
26 4531(a) (relating to benefits). A society may organize and
27 operate branches for such children. Membership and initiation in
28 local lodges shall not be required of such children, nor shall
29 they have any voice in the management of the society.
30 (b) Powers.--A society may provide for the designation and
19850H1962B2642 - 586 -
1 changing of designation of beneficiaries in the certificates
2 providing for the benefits and provide in all other respects for
3 the regulation of the certificates and all rights, obligations
4 and liabilities incident thereto.
5 § 4533. Benefit options.
6 (a) Authorization.--A society may grant paid-up
7 nonforfeiture benefits, cash surrender values, certificate loans
8 and such other options as its bylaws permit. The society shall
9 grant by means of the certificate at least one paid-up
10 nonforfeiture benefit, except in the case of pure endowment,
11 annuity or reversionary annuity contracts, reducing term
12 insurance contracts or contracts of term insurance of a uniform
13 amount of 15 years or less expiring before 66 years of age.
14 (b) Reserves computed on certain tables.--In the case of
15 certificates for which reserves are computed on the
16 commissioner's 1941 Standard Ordinary Mortality Table, the 1941
17 Standard Industrial Table or the commissioner's 1958 Standard
18 Ordinary Mortality Table or any more recent table made
19 applicable to life insurance companies, every paid-up
20 nonforfeiture benefit and the amount of any cash surrender
21 value, loan or other option granted shall not be less than the
22 corresponding amount ascertained in accordance with the
23 provisions of this title applicable to life insurance companies
24 issuing policies containing similar insurance benefits based
25 upon those tables.
26 (c) Computation of certain benefits.--In the case of
27 certificates other than those for which reserves are computed on
28 the commissioner's 1941 Standard Ordinary Mortality Table, the
29 1941 Standard Industrial Table or the commissioner's 1958
30 Standard Ordinary Mortality Table, or any more recent table made
19850H1962B2642 - 587 -
1 applicable to life insurance companies the value of every paid-
2 up nonforfeiture benefit and the amount of any cash surrender
3 value, loan or other option granted shall not be less than the
4 excess, if any, of paragraph (1) over paragraph (2) as follows:
5 (1) The reserve under the certificate determined on the
6 basis specified in the certificate.
7 (2) The sum of any indebtedness to the society on the
8 certificate, including interest due and accrued, and a
9 surrender charge equal to 2.5% of the face amount of the
10 certificate, which, in the case of insurance on the lives of
11 children, shall be the ultimate face amount of the
12 certificate, if death benefits provided therein are graded.
13 (d) Reserves computed on substandard basis.--In the case of
14 certificates issued on a substandard basis or in the case of
15 certificates, the reserves for which are computed upon the
16 American Men Ultimate Table of Mortality the term of any
17 extended insurance benefit granted including any accompanying
18 pure endowment may be computed upon the rates of mortality not
19 greater than 130% of those shown by the mortality table
20 specified in the certificate for the computation of the reserve.
21 § 4534. Beneficiaries.
22 (a) Power to change beneficiaries.--Unless otherwise
23 provided in the contract:
24 (1) The member shall have the right at all times to
25 change the beneficiary or beneficiaries and to assign the
26 certificate.
27 (2) A beneficiary shall not have or obtain any interest
28 in the proceeds of any certificate until a certificate
29 becomes due and payable in conformity with its provisions.
30 (b) Limitation on scope of beneficiaries.--The society by
19850H1962B2642 - 588 -
1 its constitution, bylaws and rules may limit the scope of
2 beneficiaries.
3 (c) Payment of funeral benefits.--A society may make
4 provision for the payment of funeral benefits to the extent of
5 such portion of any payment under a certificate as might
6 reasonably appear to be due to any person equitably entitled
7 thereto by reason of having incurred expense occasioned by the
8 burial of the member, but the portion so paid shall not exceed
9 $1,000.
10 (d) Payment to personal representative.--If at the death of
11 any member there is no lawful beneficiary to whom the insurance
12 benefits are payable, the amount of the benefits, except to the
13 extent that funeral benefits may be paid under subsection (c),
14 shall be payable to the personal representative of the deceased
15 member.
16 § 4535. Attachment of benefits.
17 Money or other benefit, charity, relief or aid to be provided
18 by any society shall not be liable to attachment, garnishment or
19 other process, or to be applied by any legal or equitable
20 process or operation of law, to pay any debt or liability of a
21 member or beneficiary or any other person who may have a right
22 thereunder, either before or after payment by the society.
23 § 4536. Contract for benefits.
24 (a) Materials forming contract.--Every society authorized to
25 do business in this Commonwealth shall issue a certificate to
26 the benefit member, or the spouse of a member, or to the
27 applicant for a minor, specifying the amount of benefits
28 provided thereby. The certificate, together with any riders or
29 endorsements attached thereto, the charter or articles of
30 incorporation, the constitution and bylaws of the society, any
19850H1962B2642 - 589 -
1 application for benefits and declaration of insurability signed
2 by the applicant and all amendments to these shall constitute
3 the agreement, as of the date of issuance, between the society
4 and the member, and the certificate shall so state. A copy of
5 any application for benefits and of any declaration of
6 insurability shall be endorsed upon or attached to the
7 certificate.
8 (b) Statements and waiver.--All statements purporting to be
9 made by the member shall be representations and not warranties.
10 Any waiver of this provision shall be void.
11 (c) Amendments.--Any amendment to the charter or articles of
12 incorporation, constitution or bylaws, made or enacted
13 subsequent to the issuance of the certificate, shall bind the
14 member and the beneficiaries, and shall control the agreement as
15 though in force at the time of the application for membership.
16 However, no amendment shall diminish benefits which the society
17 contracted to give the member as of the date of issuance.
18 (d) Responsibility of members for deficiency.--Every society
19 shall contain a provision in its bylaws and in each certificate
20 of life insurance it issues, to which every certificate of
21 insurance issued by the society shall be subject, that if the
22 financial position of the society becomes impaired, subject to
23 the prior written approval of the commissioner, the board of
24 directors or the supreme governing body may determine on an
25 equitable basis the proportionate share of the deficiency of
26 each member of the society. Each benefit member may then either
27 pay his share of the deficiency, accept the imposition of a lien
28 on the certificate of insurance or accept a proportionate
29 reduction in benefits under his certificate. The society may
30 specify the manner of the election and which alternative is to
19850H1962B2642 - 590 -
1 be presumed if no election is made, subject to the prior written
2 approval of the commissioner in the case of domestic societies.
3 Any lien on a certificate of insurance shall bear interest at
4 the rate charged on policy loans under the certificate, if
5 applicable, or otherwise at a rate approved by the commissioner,
6 compounded annually until paid.
7 SUBCHAPTER D
8 CERTIFICATES
9 Sec.
10 4541. Approval of certificates.
11 4542. Criteria of review.
12 4543. Statement of title and premiums.
13 4544. Membership provisions.
14 4545. Default.
15 4546. Tables.
16 4547. Redetermination of premiums.
17 4548. Surplus.
18 4549. Loan value.
19 § 4541. Approval of certificates.
20 (a) General rule.--A fraternal benefit society doing
21 business in this Commonwealth shall not issue, sell or dispose
22 of any certificate, covering life, health, accident or any other
23 contract of insurance or any contracts pertaining to a pure
24 endowment or annuity, or use applications, riders or
25 endorsements in connection therewith, until the forms of the
26 same have been filed with and approved by the commissioner.
27 However, riders and endorsements relating to the manner of
28 distribution of benefits, and to the reservation of rights and
29 benefits under any such certificate, and used at the request of
30 the individual certificate holder, and any forms which, in the
19850H1962B2642 - 591 -
1 opinion of the commissioner, do not require approval need not be
2 filed under this section.
3 (b) Deemed approval.--Forms so filed shall be deemed
4 approved at the expiration of 30 days after filing, unless
5 earlier approved or disapproved by the commissioner. The
6 commissioner, by written notice to the society within the 30-day
7 period, may extend the period for approval or disapproval for an
8 additional 30 days.
9 (c) Voiding of approval.--Such approval shall become void
10 upon any subsequent notice of disapproval from the commissioner,
11 or upon any subsequent withdrawal of license or refusal of the
12 commissioner to relicense the society, or upon the subsequent
13 passage of a statute which would no longer make such contracts
14 or related forms a fit subject for approval, except that this
15 provision shall not affect contracts issued prior thereto.
16 (d) Notification of disapproval.--Upon any disapproval, the
17 commissioner shall notify the society in writing, specifying the
18 reason for disapproval. Within 30 days from the date of mailing
19 of the notice to the society, the society may make written
20 application to the commissioner for a hearing thereon. The
21 hearing shall be held within 30 days after receipt of the
22 application. The procedure before the commissioner shall be in
23 accordance with the adjudication procedure set forth in 2
24 Pa.C.S. Ch. 5 Subch. A (relating to practice and procedure of
25 Commonwealth agencies), and the society shall be entitled to
26 judicial review under 2 Pa.C.S. Ch. 7 Subch. A (relating to
27 judicial review of Commonwealth agency action).
28 (e) Penalty.--Any person that, either as principal or agent,
29 issues or causes to be issued any certificate or contract of
30 insurance in this Commonwealth, contrary to this section,
19850H1962B2642 - 592 -
1 commits a misdemeanor of the third degree.
2 (f) Civil penalties.--Upon satisfactory evidence of the
3 violation of this section by any person, the commissioner may
4 pursue any one or more of the following courses of action:
5 (1) Suspend or revoke the license of the offending
6 person.
7 (2) Refuse, for a period of not to exceed one year
8 thereafter, to issue a new license to the person.
9 (3) Impose a fine of not more than $1,000 for each act
10 in violation of this chapter.
11 § 4542. Criteria for review.
12 (a) Required provisions.--The certificate shall contain in
13 substance the standard provisions set forth in sections 4543
14 (relating to statement of title and premiums) through 4549
15 (relating to loan value) or, in lieu thereof, provisions which
16 are more favorable to the member. Any of the mandated provisions
17 or portions thereof not applicable by reason of the plan of
18 insurance or because the certificate is an annuity certificate
19 may, to the extent inapplicable, be omitted from the
20 certificate.
21 (b) Prohibited provisions.--A life benefit certificate shall
22 not be delivered or issued for delivery in this Commonwealth
23 containing in substance any of the following provisions:
24 (1) Any provision limiting the time within which any
25 action at law or in equity may be commenced to less than two
26 years after the cause of action shall accrue.
27 (2) Any provision by which the certificate shall purport
28 to be issued or to take effect more than six months before
29 the original application for the certificate was made, except
30 in case of transfer from one form of certificate to another
19850H1962B2642 - 593 -
1 in connection with which the member is to receive credit for
2 any reserve accumulation under the form of certificate from
3 which the transfer is made.
4 (3) Any provision for forfeiture of the certificate for
5 failure to repay any loan thereon or to pay interest on such
6 loan while the total indebtedness, including interest, is
7 less than the loan value of the certificate.
8 § 4543. Statement of title and premiums.
9 There shall appear on the face of the filing page of the
10 certificate a statement of the title of the certificate and a
11 brief description which clearly and correctly describes its form
12 and identifies the insurer as a member of a fraternal benefit
13 society. There shall also appear a provision stating the amount
14 of premiums, dues or other required contributions, by whatever
15 name known, which are payable by the insured under the
16 certificate.
17 § 4544. Membership provisions.
18 (a) Right to maintain insurance.--There shall be a statement
19 that any benefit member expelled or suspended, except for
20 nonpayment of a premium or within the contestable period for
21 material misrepresentations in the member's application for
22 membership, may maintain his insurance in force by continuing
23 payment of the required premium.
24 (b) Grace period.--There shall be a provision that the
25 member is entitled to a grace period of not less than a full
26 month, or 30 days at the option of the society in which the
27 payment of any premium after the initial premium may be made.
28 During the grace period the certificate shall continue in full
29 force, but if the certificate becomes a claim during the grace
30 period before the overdue payment is made, the amount of the
19850H1962B2642 - 594 -
1 overdue payment or payments may be deducted in any settlement
2 under the certificate.
3 (c) Reinstatement.--There shall be a provision that the
4 member shall be entitled to have the certificate reinstated at
5 any time within three years from the due date of the premium in
6 default, unless the certificate has been completely terminated
7 through the application of a nonforfeiture benefit, cash
8 surrender value or certificate loan, upon the production of
9 evidence of insurability satisfactory to the society and the
10 payment of all overdue premiums and any other indebtedness to
11 the society upon the certificate together with any interest on
12 the premiums and the indebtedness, at a rate not exceeding 6% a
13 year compounded annually.
14 (d) Contestability.--There shall be a provision that the
15 certificate shall be incontestable after it has been in force
16 during the lifetime of the member for a period of two years from
17 its date of issue except for nonpayment of premiums. At the
18 option of the society, supplemental provisions relating to
19 waiver of premium and provisions which grant additional
20 insurance specifically against death by accident may also be
21 excepted. The certificate may provide, as to statements made to
22 procure reinstatement, that the society may contest a reinstated
23 certificate within a period of two years from the date of
24 reinstatement based on the information in the reinstatement
25 application.
26 § 4545. Default.
27 (a) Paid-up nonforfeiture benefits.--There shall be a
28 provision that, in the event of default in payment of any
29 premium after three full years premiums have been paid or after
30 premiums for a lesser period have been paid if the contract so
19850H1962B2642 - 595 -
1 provides, the society will grant, upon proper request not later
2 than 60 days after the due date of the premium in default, a
3 paid-up nonforfeiture benefit on the plan stipulated in the
4 certificate, effective as of the due date, of such value as
5 specified in this chapter.
6 (b) Optional payment provisions.--The certificate may
7 provide, if the society's bylaws so specify and if the member so
8 elects prior to the expiration of the grace period of any
9 overdue premium, that default does not occur so long as premiums
10 can be paid under an arrangement for automatic premium loan as
11 set forth in the certificate.
12 (c) Election of other paid-up nonforfeiture benefits.--There
13 shall be a statement that one paid-up nonforfeiture benefit as
14 specified in the certificate shall become effective
15 automatically unless the member elects another available paid-up
16 nonforfeiture benefit, not later than 60 days after the due date
17 of the premium in default.
18 (d) Applicability of section.--This section does not apply
19 in the case of pure endowment, annuity or reversionary annuity
20 contracts, reducing term insurance contracts, or contracts of
21 term insurance of uniform amount of 15 years or less expiring
22 before 66 years of age.
23 § 4546. Tables.
24 (a) Mortality table and interest rate.--There shall be a
25 statement of the mortality table and rate of interest used in
26 determining all paid-up nonforfeiture benefits and cash
27 surrender options available under the certificate and a brief
28 general description of the method used in calculating such
29 benefits.
30 (b) Table of certain values.--There shall be a table showing
19850H1962B2642 - 596 -
1 in numbers the value of every paid-up nonforfeiture benefit and
2 cash surrender option available under the certificate for each
3 certificate anniversary either during the first 20 certificate
4 years or during the term of the certificate, whichever is
5 shorter.
6 § 4547. Redetermination of premiums.
7 There shall be a provision that in case the age or sex of the
8 member or of any other person is considered in determining the
9 premium and it is found at any time before final settlement
10 under the certificate that the age or sex has been misstated,
11 and the discrepancy and premium involved have not been adjusted,
12 the amount payable under the certificate shall be such as the
13 premium would have purchased at the correct age and sex. If the
14 correct age was not an insurable age under the society's charter
15 or laws, only the premiums paid to the society, less any
16 payments previously made to the member, shall be returned or, at
17 the option of the society, the amount payable under the
18 certificate shall be such as the premium would have purchased at
19 the correct age according to the society's promulgated rates and
20 any extension thereof based on actuarial principles.
21 § 4548. Surplus.
22 (a) Right to surplus.--There shall be a provision that the
23 certificate shall participate in the surplus of the society, and
24 that, beginning not later than the end of the third certificate
25 year, the society will annually determine the portion of the
26 divisible surplus accruing on the certificate, and that the
27 member entitled to elect the option may have the dividend
28 arising from such participation paid in cash or applied in
29 accordance with any one of the other dividend options as
30 provided by the certificate. If any such other dividend options
19850H1962B2642 - 597 -
1 are provided, the certificate shall further state which option
2 shall be automatically effective, if the member has not elected
3 a different option.
4 (b) Optional surplus provision.--The certificate may contain
5 a provision that the certificate shall participate in the
6 surplus of the society, and that, beginning not later than the
7 end of the fifth certificate year, the society will determine
8 the portion of the divisible surplus accruing on the
9 certificate, and that the member entitled thereto may have the
10 current dividend arising from such participation paid in cash,
11 and that, at periods of not more than five years thereafter,
12 such apportionment and payment shall be done at the option of
13 the member.
14 (c) Surplus on term certificates.--Renewable term
15 certificates of ten years or less may provide that the surplus
16 accruing to such certificates shall be determined and
17 apportioned each year after the second certificate year, and
18 accumulated during each renewal period, and that at the end of
19 any renewal period, or renewal of the certificate by the member,
20 the society shall apply the accumulated surplus as an annuity
21 for the next succeeding renewal term to the reduction of
22 premiums.
23 § 4549. Loan value.
24 There shall be a provision for a loan value at any time after
25 three full years' premiums have been paid and while no premium
26 is in default beyond the grace period of payment. The loan
27 provision shall further provide that the society will advance,
28 on proper assignment or pledge of the certificate, and on the
29 sole security thereof, at a specified rate of interest, a sum
30 equal to or, at the option of the member entitled thereto, less
19850H1962B2642 - 598 -
1 than, the cash surrender value at the end of the current
2 certificate year as required by section 4532 (relating to
3 benefits on lives of children) and that the society may deduct
4 from such loan value, in addition to any indebtedness deducted
5 in determining such value, any unpaid balance of the premium for
6 the current certificate year, and may collect interest in
7 advance on the loan to the end of the current certificate year.
8 The society shall reserve the right to defer such loan, except
9 any made to pay premiums to the society, for six months after
10 application therefor is made. This section does not apply to
11 term insurance.
12 SUBCHAPTER E
13 ACCIDENT, HEALTH AND DISABILITY INSURANCE CONTRACTS
14 Sec.
15 4551. Approval of contracts by commissioner.
16 4552. Conditions for certificates.
17 4553. Standard contract provisions.
18 4554. Entire contract and changes.
19 4555. Time limits on certain defenses.
20 4556. Grace periods.
21 4557. Reinstatement.
22 4558. Claim procedure.
23 4559. Payment of claims.
24 4560. Legal actions.
25 4561. Change of beneficiary.
26 4562. Change of occupation.
27 4563. Conduct of insured.
28 4564. Other insurance.
29 4565. Relation of earnings to insurance.
30 4566. Cancellation.
19850H1962B2642 - 599 -
1 4567. Conformity of provisions with state statutes.
2 4568. Inapplicable provisions.
3 4569. Composition and construction of certificates.
4 § 4551. Approval of contracts by commissioner.
5 A certificate of insurance against loss from sickness or loss
6 or damage from bodily injury or death of the insured by accident
7 shall not be issued or delivered by any society, association or
8 exchange issuing the certificate to any person in this
9 Commonwealth until a copy of the form thereof, and of the
10 classification of risks and the dues, premiums or other required
11 contribution pertaining thereto, have been filed with and
12 approved by the commissioner. If the commissioner notifies the
13 society which has filed the form in writing that it does not
14 comply with the requirements of law, specifying the reason for
15 his opinion, the society shall not issue any certificate in that
16 form. The action of the commissioner in this regard shall be
17 subject to review by the Commonwealth Court.
18 § 4552. Conditions for certificates.
19 (a) General conditions.--A certificate shall not be
20 delivered or issued for delivery to any person in this
21 Commonwealth unless all of the following conditions are met:
22 (1) The entire money and other considerations therefor
23 shall be stated in the certificate.
24 (2) The time at which the insurance takes effect and
25 terminates shall be stated in the certificate.
26 (3) It shall purport to insure only one person, except
27 that upon the application of an adult head of a family, who
28 shall be deemed the certificate holder, a policy may insure,
29 originally or by amendment, any two or more eligible members
30 of that family, including husband, wife, dependent children
19850H1962B2642 - 600 -
1 or any children under a specified age, which shall not exceed
2 19 years of age, and any other person dependent upon the
3 certificate holder.
4 (4) The style, arrangement and overall appearance of the
5 certificate shall give no undue prominence to any portion of
6 the text, and every printed portion of the text of the
7 certificate and of any endorsements or attached papers shall
8 be plainly printed in light face type of a style in general
9 use, the size of which type shall be uniform and not less
10 than ten point with a lower case unspaced alphabet length not
11 less than 120 point. As used in this paragraph the term
12 "text" includes all printed matter except the name and
13 address of the society, name or title of the certificate, the
14 brief description, if any, and captions and subcaptions.
15 (5) The exceptions and reductions of indemnity shall be
16 set forth in the certificate. Except for those set forth in
17 this chapter, these exceptions and reductions shall, at the
18 society's option, either be included with the benefit
19 provision to which they apply or under an appropriate caption
20 such as "exceptions" or "exceptions and reductions." If an
21 exception or reduction specifically applies only to a
22 particular benefit of the certificate, a statement of the
23 exception or reduction shall be included with the benefit
24 provision to which it applies.
25 (6) Each such form, including riders and endorsements,
26 shall be identified by a form number in the lower left-hand
27 corner of the first page thereof.
28 (7) It contains no provision purporting to make any
29 portion of the charter, rules, constitution or bylaws of the
30 society a part of the policy unless such portion is set forth
19850H1962B2642 - 601 -
1 in full in the policy, except in the case of the
2 incorporation of, or reference to, a statement of rates or
3 classification of risks or short-rate table filed with the
4 commissioner.
5 (8) If the certificate is entitled or referred to as
6 "noncancelable," the noncancelable certificate is
7 automatically renewable until 60 years of age upon payment of
8 the required premiums by the insured.
9 (9) With respect to an unmarried child covered by the
10 certificate prior to the attainment of 19 years of age who is
11 incapable of self-sustaining employment by reason of mental
12 retardation or physical handicap, who became so incapable
13 prior to attainment of 19 years of age and who is chiefly
14 dependent upon the certificate holder for support and
15 maintenance, a certificate under which coverage of a
16 dependent of a certificate holder terminates at a specified
17 age shall not terminate while the certificate remains in
18 force and the dependent remains in such condition, if the
19 certificate holder has within 31 days of the dependent's
20 attainment of the limiting age submitted proof of his
21 incapacity. This paragraph does not require a society to
22 insure a mentally retarded or physically handicapped
23 dependent child where the certificate is underwritten on
24 evidence of insurability based on health factors set forth in
25 the application or where the dependent does not satisfy the
26 conditions of the certificate as to evidence of insurability
27 or other provisions of the certificate, satisfaction of which
28 is required for the coverage to take effect; in any such
29 case, the terms of the certificate shall apply with regard to
30 the coverage or exclusion from coverage of the dependent.
19850H1962B2642 - 602 -
1 (b) Nonresident members.--If any certificate is issued by a
2 society domiciled in this Commonwealth for delivery to a person
3 residing in another state, and if the official having
4 responsibility for the administration of the insurance laws of
5 the other state has advised the commissioner that such a
6 certificate is not subject to approval or disapproval by the
7 official, the commissioner may by ruling require that the
8 certificate meet the standards set forth in section 4541
9 (relating to approval of certificates) and this chapter.
10 § 4553. Standard contract provisions.
11 Except as provided in this chapter, each certificate
12 delivered or issued for delivery to any person in this
13 Commonwealth with respect to accident and health coverage and
14 coverage for permanent and total disability shall contain the
15 contract provisions specified in sections 4554 (relating to
16 entire contract and changes) through 4567 (relating to
17 conformity of provisions with state statutes) in the words in
18 which the same appear in this chapter. However, the society may,
19 at its option, substitute for one or more of such provisions
20 corresponding provisions of different wording approved by the
21 commissioner which are in each instance not less favorable in
22 any respect to the benefit member or the beneficiary. Such
23 provisions shall be preceded individually by the caption
24 appearing in this section or, at the option of the society, by
25 such appropriate individual or group captions or subcaptions as
26 the commissioner may approve.
27 § 4554. Entire contract and changes.
28 There shall be a provision as follows:
29 Entire Contract; Changes: This certificate, including the
30 society's bylaws, the endorsements and the attached
19850H1962B2642 - 603 -
1 papers, if any, constitutes the entire contract of
2 insurance. No change in this certificate shall be valid
3 until approved by an executive officer of the society and
4 unless such approval be endorsed hereon or attached
5 hereto. No agent has authority to change this certificate
6 or to waive any of its provisions.
7 § 4555. Time limits on certain defenses.
8 (a) Mandatory provision.--There shall be a provision as
9 follows:
10 Time Limit on Certain Defenses: After three years from
11 the date of issue of this certificate no misstatements,
12 except fraudulent misstatements, made by the applicant in
13 the application for such certificate shall be used to
14 void the certificate or to deny a claim for loss incurred
15 or disability (as defined in the certificate) commencing
16 after the expiration of such three-year period.
17 (b) Nonapplicability.--The certificate provision does not
18 affect any legal requirement for avoidance of a certificate or
19 denial of a claim during such initial three-year period, nor
20 limit the application of sections 4554 (relating to entire
21 contract and changes) through 4557 (relating to reinstatement)
22 and section 4558(a), (b) and (c) (relating to claim procedure)
23 in the event of misstatement with respect to age or occupation
24 or other insurance.
25 (c) Optional language for weekly payment situations.--
26 (1) In a certificate where the dues, premiums or other
27 required contributions are payable weekly, the words "if such
28 application is made a part of the certificate" may be
29 inserted in the certificate provision between the word
30 "certificate" and the word "shall" immediately following.
19850H1962B2642 - 604 -
1 (2) In certificates whereon the dues, premiums or the
2 required contributions are payable weekly, the words "or from
3 the date of any reinstatement thereof" may be inserted in the
4 certificate provision between the word "certificate" and the
5 word "shall" immediately following.
6 (d) Optional language where certificate member has power to
7 continue certificate.--A certificate which the benefit member
8 has the right to continue in force subject to its terms by the
9 timely payment of the dues, premium or other required
10 contribution until at least 50 years of age, or in the case of a
11 certificate issued after 44 years of age, for at least five
12 years from its date of issue, may contain in lieu of the
13 language in section 4558(a) (relating to claim procedure), the
14 following provision:
15 Incontestability Period: After this certificate has been
16 in force for a period of three years during the lifetime
17 of the benefit member (excluding any period during which
18 the benefit member is disabled), it shall become
19 incontestable as to the statements contained in the
20 application.
21 (e) Nondenial or reduction of certain claims.--There shall
22 be a provision as follows:
23 Nondenial or Reduction of Certain Claims: No claim for
24 loss incurred or disability (as defined in the
25 certificate) commencing after three years from the date
26 of issue of this certificate shall be reduced or denied
27 on the ground that a disease or physical condition not
28 excluded from coverage by name or specific description
29 effective on the date of loss had existed prior to the
30 effective date of coverage of this certificate.
19850H1962B2642 - 605 -
1 § 4556. Grace periods.
2 (a) Period established.--There shall be a provision as
3 follows:
4 Grace Period: There shall be a grace period of (insert a
5 number not less than "7" for weekly dues, premium or
6 other required contribution certificates, "10" for
7 monthly dues, premium or other required contribution
8 certificates and "31" for all other certificates) days
9 will be granted for the payment of each dues, premium or
10 other required contribution falling due after the first
11 dues, premium or other required contribution during which
12 grace period the certificate shall continue in force.
13 (b) Cancellation.--A certificate which contains a
14 cancellation provision may add, at the end of the provision,
15 "subject to the right of the benefit member to cancel in
16 accordance with the cancellation provision hereof."
17 (c) Reservation of right to refuse renewal.--A certificate
18 in which the society reserves the right to refuse any renewal
19 shall have, at the beginning of the contract provision set forth
20 in subsection (a), "unless not less than 30 days prior to the
21 dues, premium or other required contribution due date the
22 society has delivered to the benefit member or has mailed to his
23 last address as shown by the records of the society written
24 notice of its intention not to renew this certificate beyond the
25 period for which the dues, premium or other required
26 contribution has been accepted."
27 § 4557. Reinstatement.
28 (a) Mandatory provision.--There shall be a provision as
29 follows:
30 Reinstatement: If any renewal dues, premium or other
19850H1962B2642 - 606 -
1 required contribution is not paid within the time granted
2 the society for payment, a subsequent acceptance of dues,
3 premium or other required contribution by the society or
4 by any agent duly authorized by the society to accept
5 such dues, premium or other required contribution without
6 requiring in connection therewith an application for
7 reinstatement, shall reinstate the certificate: Provided,
8 however, That if the society or such agent requires an
9 application for reinstatement and issues a conditional
10 receipt for the dues, premium or other required
11 contribution tendered, the certificate will be reinstated
12 upon approval of such application by the society or,
13 lacking such approval, upon the 45th day following the
14 date of such conditional receipt unless the society has
15 previously notified the benefit member in writing of its
16 disapproval of such application. The reinstated
17 certificate shall cover only loss resulting from such
18 accidental injury as may be sustained after the date of
19 reinstatement and loss due to such sickness as may begin
20 more than ten days after such date. In all other respects
21 the benefit member and society shall have the same rights
22 thereunder as they had under the certificate immediately
23 before the due date of the defaulted dues, premium or
24 other required contribution subject to any provisions
25 endorsed hereon or attached hereto in connection with the
26 reinstatement. Any dues, premium or other required
27 contribution accepted in connection with a reinstatement
28 shall be applied to a period for which the dues, premium
29 or other required contribution has not been previously
30 paid, but not to any period more than 60 days prior to
19850H1962B2642 - 607 -
1 the date of reinstatement.
2 (b) Payments accepted.--The last sentence of the contract
3 provision set forth in subsection (a) may be omitted:
4 (1) from any certificate which the benefit member has
5 the right to continue in force subject to its terms by the
6 timely payment of the dues, premiums or other required
7 contributions until at least 50 years of age or, in the case
8 of a certificate issued after 44 years of age, for at least
9 five years from the date of its issue; or
10 (2) from any certificate on which the dues, premiums or
11 other required contributions are payable weekly.
12 § 4558. Claim procedure.
13 (a) Notice of claim.--There shall be a provision as follows:
14 Notice of Claim: Written notice of claim must be given to
15 the society within 20 days after the occurrence or
16 commencement of any loss covered by the certificate, or
17 as soon thereafter as is reasonably possible. Notice
18 given by or on behalf of the benefit member or the
19 beneficiary to the society at (insert the location of
20 such office as the society may designate for the purpose)
21 or to any authorized agent of the society, with
22 information sufficient to identify the benefit member,
23 shall be deemed notice to the society.
24 (b) Optional language for weekly payment insurance.--In a
25 certificate whereon the dues, premiums or other required
26 contributions are payable weekly, the first sentence of the
27 contract provisions set forth in subsection (a) may read:
28 Written notice of claim must be given to the society
29 within 10 days of the commencement of any nonhospital
30 confining sickness covered by the certificate and within
19850H1962B2642 - 608 -
1 20 days after the occurrence or commencement of any other
2 loss covered by the certificate, or as soon thereafter as
3 is reasonably possible.
4 (c) Language in loss of time benefit insurance.--In a
5 certificate providing a loss of time benefit which may be
6 payable for at least two years, a society may insert the
7 following between the first and second sentences of the
8 provision set forth in subsection (a):
9 Subject to the qualifications set forth below, if the
10 benefit member suffers loss of time on account of
11 disability for which indemnity may be payable for at
12 least two years, he shall, at least once in every six
13 months after having given notice of claim, give to the
14 society notice of continuance of said disability, except
15 in the event of legal incapacity. The period of six
16 months following any filing of proof by the benefit
17 member or any payment by the society on account of such
18 claim or any denial of liability in whole or in part by
19 the society shall be excluded in applying this provision.
20 Delay in the giving of such notice shall not impair the
21 benefit member's right to any indemnity which would
22 otherwise have accrued during the period of six months
23 preceding the date on which such notice is actually
24 given.
25 (d) Forms for claims.--There shall be a provision as
26 follows:
27 Claim Forms: The society, upon receipt of a notice claim,
28 will furnish to the claimant such forms as are usually
29 furnished by it for filing proofs of loss. If such forms
30 are not furnished within 15 days after the giving of such
19850H1962B2642 - 609 -
1 notice, the claimant shall be deemed to have complied
2 with the requirements of this certificate as to proof of
3 loss upon submitting, within the time fixed in the
4 certificate for filing proofs of loss, written proof
5 covering the occurrence, the character and the extent of
6 the loss for which claim is made.
7 (e) Proofs of loss.--There shall be a provision as follows:
8 Proofs of Loss: Written proof of loss must be furnished
9 to the society at its office in case of claim for loss
10 for which this certificate provides any periodic payment
11 contingent upon continuing loss within 90 days after the
12 termination of the period for which the society is liable
13 and in case of claim for any other loss within 90 days
14 after the date of such loss. Failure to furnish such
15 proof within the time required shall not invalidate or
16 reduce any claim if it was not reasonably possible to
17 give proof within such time, provided such proof is
18 furnished as soon as reasonably possible and in no event,
19 except in the absence of legal capacity, later than one
20 year from the time proof is otherwise required.
21 (f) Physical examinations and autopsy.--There shall be a
22 provision as follows:
23 Physical Examinations and Autopsy: The society at its own
24 expense shall have the right and opportunity to examine
25 the person of the benefit member when and as often as it
26 may reasonably require during the pendency of a claim
27 hereunder and to make an autopsy in case of death where
28 it is not forbidden by law.
29 § 4559. Payment of claims.
30 (a) Mandatory provision.--There shall be a provision as
19850H1962B2642 - 610 -
1 follows:
2 Payment of Claims: Indemnity for loss of life will be
3 payable in accordance with the beneficiary designation
4 and the provisions respecting such payment which may be
5 prescribed herein and effective at the time of payment.
6 If no such designation or provision is then effective,
7 such indemnity shall be payable to the estate of the
8 insured. Any other accrued indemnities unpaid at the
9 benefit member's death may, at the option of the society,
10 be paid either to such beneficiary or to such estate. All
11 other indemnities will be payable to the benefit member.
12 (b) Optional language.--The following provisions, or either
13 of them, may be included with the contract provision set forth
14 in subsection (a):
15 (1) If any indemnity of this certificate shall be
16 payable to the estate of the benefit member or to a benefit
17 member or beneficiary who is a minor or otherwise not
18 competent to give a valid release, the society may pay such
19 indemnity, up to an amount not exceeding $ (insert an amount
20 which shall not exceed $1,000), to any relative by blood or
21 connection by marriage of the benefit member or beneficiary
22 who is deemed by the society to be equitably entitled
23 thereto. Any payment made by the society in good faith
24 pursuant to this provision shall fully discharge the society
25 to the extent of such payment.
26 (2) Subject to any written direction of the benefit
27 member in the application or otherwise, all or a portion of
28 any indemnities provided by this certificate on account of
29 hospital, nursing, medical or surgical services may, at the
30 society's option and, unless the benefit member requests
19850H1962B2642 - 611 -
1 otherwise in writing, not later than the time of filing
2 proofs of such loss, be paid directly to the hospital or
3 person rendering such services; but it is not required that
4 the service be rendered by a particular hospital or person.
5 (c) Time of payment of claims.--There shall be a provision
6 as follows:
7 Time of Payment of Claims: Indemnities payable under this
8 certificate for any loss other than loss for which this
9 certificate provides any periodic payment will be paid
10 immediately upon receipt of due written proof of such
11 loss. Subject to due written proof of loss, all accrued
12 indemnities for loss for which this certificate provides
13 periodic payment will be paid (insert period for payment
14 which must not be less frequently than monthly) and any
15 balance remaining unpaid upon the termination of
16 liability will be paid immediately upon receipt of due
17 written proof.
18 § 4560. Legal actions.
19 There shall be a provision as follows:
20 Legal Actions: No action at law or in equity shall be
21 brought to recover on this certificate prior to the
22 expiration of 60 days after written proof of loss has
23 been furnished in accordance with the requirements of
24 this certificate. No such action shall be brought after
25 the expiration of three years after the time written
26 proof of loss is required to be furnished.
27 § 4561. Change of beneficiary.
28 There shall be a provision as follows:
29 Change of Beneficiary: Unless the benefit member makes an
30 irrevocable designation of beneficiary, the right to
19850H1962B2642 - 612 -
1 change of beneficiary is reserved to the benefit member
2 and the consent of the beneficiary or beneficiaries shall
3 not be requisite to surrender or assignment of this
4 certificate or to any change of beneficiary or
5 beneficiaries, or to any other changes in this
6 certificate. The first clause of this provision, relating
7 to the irrevocable designation of beneficiary, may be
8 omitted at the society's option.
9 § 4562. Change of occupation.
10 There shall be a provision as follows:
11 Change of Occupation: If the benefit member is injured or
12 contracts sickness after having changed his occupation to
13 one classified by the society as more hazardous than that
14 stated in this certificate or while doing for
15 compensation anything pertaining to an occupation so
16 classified, the society will pay only such portion of the
17 indemnities provided in this certificate as the dues,
18 premiums or other required contributions paid would have
19 purchased at the rates and within the limits fixed by the
20 society for such more hazardous occupation. If the
21 benefit member changes his occupation to one classified
22 by the society as less hazardous than that stated in this
23 certificate, the society, upon receipt of proof of such
24 change of occupation, will reduce the dues, premiums or
25 other required contributions accordingly, and will return
26 the excess pro rata unearned dues, premiums or other
27 required contributions from the date of change of
28 occupation or from the certificate anniversary date
29 immediately preceding receipt of such proof, whichever is
30 the more recent. In applying this provision, the
19850H1962B2642 - 613 -
1 classification of occupational risk and the dues,
2 premiums or other required contributions shall be such as
3 have been last filed by the society prior to the
4 occurrence of the loss for which the society is liable or
5 prior to date of proof of change in occupation with the
6 state official having supervision of insurance in the
7 state where the benefit member resided at the time this
8 certificate was issued; but if such filing was not
9 required, then the classification of occupational risk
10 and the dues, premiums or other required contributions
11 shall be those last made effective by the society in such
12 state prior to the occurrence of the loss or prior to the
13 date of proof of change in occupation.
14 § 4563. Conduct of insured.
15 (a) Misstatement of age.--There shall be a provision as
16 follows:
17 Misstatement of Age: If the age of the benefit member has
18 been misstated, all amounts payable under this
19 certificate shall be such as the dues, premiums or other
20 required contributions paid would have purchased at the
21 correct age.
22 (b) Nonpayment of premiums.--There shall be a provision as
23 follows:
24 Unpaid Dues, Premiums or Other Required Contributions:
25 Upon the payment of a claim under this certificate, any
26 dues, premiums or other required contributions then due
27 and unpaid or covered by any note or written order may be
28 deducted therefrom.
29 (c) Illegal occupation.--There shall be a provision as
30 follows:
19850H1962B2642 - 614 -
1 Illegal Occupation: The society shall not be liable for
2 any loss to which a contributing cause was the benefit
3 member's commission of or attempt to commit a felony, or
4 to which a contributing cause was the benefit member's
5 being engaged in an illegal occupation.
6 (d) Intoxicants and narcotics.--There shall be a provision
7 as follows:
8 Intoxicants and Narcotics: The society shall not be
9 liable for any loss sustained or contracted in
10 consequence of the benefit member's being intoxicated, or
11 under the influence of any narcotic unless administered
12 on the advice of a physician.
13 § 4564. Other insurance.
14 (a) Other insurance in same society.--There shall be a
15 provision as follows:
16 Other Insurance in This Society: If an accident or
17 sickness or accident and sickness certificate or
18 certificates previously issued by the society to the
19 benefit member be in force concurrently herewith, making
20 the aggregate indemnity for (insert type of coverage or
21 coverages) in excess of $ (insert maximum limit of
22 indemnity or indemnities), the excess insurance shall be
23 void and all dues, premiums or other required
24 contributions paid for such excess shall be returned to
25 the benefit member or to his estate or, in lieu thereof,
26 insurance effective at any one time on the benefit member
27 under a like certificate or certificates in this society
28 is limited to the one such certificate elected by the
29 benefit member, his beneficiary or his estate, as the
30 case may be, and the society will return all dues,
19850H1962B2642 - 615 -
1 premiums or other required contributions paid for all
2 other such certificates.
3 (b) Insurance with other benefit members.--There shall be a
4 provision as follows:
5 Insurance with Other Benefit Members: If there is other
6 valid coverage, not with this society, providing benefits
7 for the same loss on a provision of service basis or on
8 an expense incurred basis and of which this society has
9 not been given written notice prior to the occurrence or
10 commencement of loss, the only liability under any
11 expense incurred coverage of this certificate shall be
12 for such proportion of the loss of the amount which would
13 otherwise have been payable hereunder plus the total of
14 the like amounts under all such other valid coverages for
15 the same loss of which this society had notice bears to
16 the total like amounts under all valid coverages for such
17 loss, and for the return of such portion of the dues,
18 premiums or other required contributions paid as shall
19 exceed the pro rata portion for the amount so determined.
20 For the purpose of applying this provision when other
21 coverage is on a provision of service basis, the "like
22 amount" of such other coverage shall be taken as the
23 amount which the services rendered would have cost in the
24 absence of such coverage.
25 (c) Caption change for insurance with other benefit
26 members.--If the contract provision set forth in subsection (a)
27 is included in a certificate which also contains the contract
28 provision set forth in subsection (e), there shall be added to
29 the caption of the contract provision set forth in subsection
30 (b) the phrase "... Expense Incurred Benefits."
19850H1962B2642 - 616 -
1 (d) Definition of "other valid coverage" for insurance with
2 other benefit members.--The society may include in the contract
3 provision set forth in subsection (b) a definition of "other
4 valid coverage," approved as to form by the commissioner, which
5 shall be limited in subject matter to coverage provided by
6 organizations subject to regulation by insurance law or by
7 insurance authorities of this Commonwealth or any other state or
8 any province of Canada, and by hospital or medical service
9 organizations, and to any other coverage the inclusion of which
10 is approved by the commissioner. In the absence of such
11 definition, the term does not include group insurance or
12 coverage provided by hospital or medical service organizations
13 or by union welfare plans or employer or employee benefit
14 organizations. For the purpose of applying the provision set
15 forth in subsection (b) with respect to any benefit member, any
16 amount of benefit provided for the member pursuant to any
17 compulsory benefit statute, including any workmen's compensation
18 or employers' liability statute, whether provided by a
19 governmental agency or otherwise, shall be deemed "other valid
20 coverage" of which the society has had notice in applying; this
21 contract provision, in no event shall third party liability
22 coverage be included as "other valid coverage."
23 (e) Insurance with other societies.--There shall be a
24 provision as follows:
25 Insurance with Other Societies: If there is other valid
26 coverage, not with this society, providing benefits for
27 the same loss on other than an expense incurred basis and
28 of which this society has not been given written notice
29 prior to the occurrence or commencement of loss, the only
30 liability for such benefits under this certificate shall
19850H1962B2642 - 617 -
1 be for such proportion of the indemnities otherwise
2 provided hereunder for such loss as the like indemnities
3 of which the society had notice (including the
4 indemnities under this certificate) bear to the total
5 amount of all like indemnities for such loss, and for the
6 return of such portion of the dues, premiums or other
7 required contributions paid as shall exceed the pro rata
8 portion for the indemnities thus determined.
9 (f) Caption changes for insurance with other societies.--If
10 the contract provision set forth in subsection (e) is included
11 in a certificate which also contains the provision set forth in
12 subsection (b) there shall be added to the caption of the
13 foregoing provision the phrase "... other benefits."
14 (g) Definition of "other valid coverage" for insurance with
15 other societies.--The society may include in the contract
16 provision set forth in subsection (e) a definition of "other
17 valid coverage," approved as to form by the commissioner, which
18 shall be limited in subject matter to coverage provided by
19 organizations subject to regulation by insurance law or by
20 insurance authorities of this Commonwealth or any other state or
21 any province of Canada, and to any other coverage the inclusion
22 of which may be approved by the commissioner. In the absence of
23 such definition, the term does not include group insurance or
24 benefits provided by union welfare plans or by employer or
25 employee benefit organizations. For the purpose of applying the
26 contract provision set forth in subsection (e) with respect to
27 any benefit member, any amount of benefit provided for the
28 insured pursuant to any compulsory benefit statute including any
29 workmen's compensation or employers' liability statute, whether
30 provided by a governmental agency or otherwise, shall be deemed
19850H1962B2642 - 618 -
1 "other valid coverage" of which the society has had notice; in
2 applying this contract provision, in no event shall third party
3 liability coverage be included as "other valid coverage."
4 § 4565. Relation of earnings to insurance.
5 (a) Reduction of payments to rates with earnings.--If
6 permitted by subsection (b), there shall be a provision as
7 follows:
8 Relation of Earnings to Insurance: If the total monthly
9 amount of loss of time benefits promised for the same
10 loss under all valid loss of time coverage upon the
11 benefit member, whether payable on a weekly or monthly
12 basis, shall exceed the monthly earnings for the period
13 of two years immediately preceding a disability for which
14 claim is made, whichever is the greater, the society will
15 be liable only for such proportionate amount of such
16 benefits under this certificate as the amount of such
17 monthly earnings or such average monthly earnings of the
18 benefit member bears to the total amount of monthly
19 benefits for the same loss under all such coverage upon
20 the benefit member at the time such disability commences
21 and for the return of such part of the dues, premiums or
22 other required contributions paid during such two years
23 as shall exceed the pro rata amount of the dues, premiums
24 or other required contributions for the benefits actually
25 paid hereunder; but this shall not operate to reduce the
26 total monthly amount of benefits payable under all such
27 coverage upon the benefit member below the sum of $200 or
28 the sum of the monthly benefits specified in such
29 coverages, whichever is the lesser, nor shall it operate
30 to reduce benefits other than those payable for loss of
19850H1962B2642 - 619 -
1 time.
2 (b) Limited use of provision.--The contract provision set
3 forth in subsection (a) shall be inserted only in a certificate
4 which the benefit member has the right to continue in force
5 subject to its terms by the timely payment of dues, premiums or
6 other required contributions until at least 50 years of age or,
7 in the case of a certificate issued after 44 years of age, for
8 at least five years from its date of issue.
9 (c) Definition of "valid loss of time coverage".--The
10 society may include in the contract provision set forth in
11 subsection (a), a definition of "valid loss of time coverage,"
12 approved as to form by the commissioner, which shall be limited
13 in subject matter to coverage provided by governmental agencies
14 or by organizations subject to regulation by insurance law or by
15 insurance authorities of this Commonwealth or any other state or
16 any province of Canada, or to any other coverage, the inclusion
17 of which may be approved by the commissioner, or any combination
18 of such coverages. In the absence of such definition, the term
19 does not include any coverage provided for the member pursuant
20 to any compulsory benefit statute, including any workmen's
21 compensation or employers' liability statute, or benefits
22 provided by union welfare plans or by employer or employee
23 benefit organizations.
24 § 4566. Cancellation.
25 There shall be a provision as follows:
26 Cancellation: The society may cancel this certificate at
27 any time by written notice delivered to the benefit
28 member or mailed to his last address as shown by the
29 records of the society, stating when, not less than 30
30 days thereafter, such cancellation shall be effective;
19850H1962B2642 - 620 -
1 and after the certificate has been continued beyond its
2 original term, the benefit member may cancel this
3 certificate at any time by written notice delivered or
4 mailed to the society, effective upon receipt or on such
5 later date as may be specified in such notice. In the
6 event of cancellation, the society will return promptly
7 the unearned portion of any dues, premiums or other
8 required contributions paid. If the benefit member
9 cancels, the unearned dues, premiums or other required
10 contributions shall be computed by the use of the short
11 rate table last filed with the state official having
12 supervision of insurance in the state where the benefit
13 member resided when the certificate was issued. If the
14 society cancels, the earned dues, premiums or other
15 required contributions shall be computed pro rata.
16 Cancellation shall be without prejudice to any claim
17 originating prior to the effective date of cancellation.
18 § 4567. Conformity of provisions with state statutes.
19 There shall be a provision as follows:
20 Conformity with State Statutes: Any provision of this
21 certificate which, on its effective date, is in conflict
22 with the statutes of the state in which the benefit
23 member resides on such date, is hereby amended to conform
24 to the minimum requirements of such statutes.
25 § 4568. Inapplicable provisions.
26 (a) Modification for type of coverage.--If any contract
27 provision of this chapter is in whole or in part inapplicable to
28 or inconsistent with the coverage provided by a particular form
29 of certificate, the society, with the approval of the
30 commissioner, shall omit from the certificate any inapplicable
19850H1962B2642 - 621 -
1 provision and shall modify any inconsistent provision in such
2 manner as to make the provision as contained in the certificate
3 consistent with the coverage provided by the certificate.
4 (b) Power of commissioner.--Where the commissioner deems
5 inapplicable, either in part or in their entirety, the contract
6 provisions of this chapter, he may prescribe the portions or
7 summary thereof of the contract to be printed on the certificate
8 issued to the member.
9 § 4569. Composition and construction of certificates.
10 (a) Order of provisions.--The contract provisions prescribed
11 by this chapter or any corresponding provisions which are used
12 in lieu thereof in accordance therewith shall be printed in the
13 consecutive order of the provisions therein or, at the option of
14 the society, any such provision may appear as a unit in any part
15 of the certificate, with other provisions to which it may be
16 logically related, provided the resulting certificate shall not
17 be in whole or in part unintelligible, ambiguous or misleading.
18 (b) Third-party ownership.--The term "benefit member," as
19 used in this chapter, shall not be construed as preventing a
20 person other than the benefit member with a proper insurable
21 interest from making application for and owning a certificate
22 covering the benefit member or from being entitled under such a
23 certificate to any indemnities, benefits and rights provided
24 therein.
25 SUBCHAPTER F
26 LICENSURE
27 Sec.
28 4571. Annual license for societies.
29 4572. Fees.
30 4573. Foreign societies.
19850H1962B2642 - 622 -
1 4574. Injunction, liquidation or receivership of domestic
2 societies.
3 4575. Suspension, revocation or refusal of license to foreign
4 societies.
5 4576. Application for injunction.
6 4577. Licensure of fraternal insurance agents.
7 § 4571. Annual license for societies.
8 The authority of the societies shall be renewed annually, on
9 or before April 1.
10 § 4572. Fees.
11 The Insurance Commissioner shall charge and collect fees
12 under section 613-A(3) of the act of April 9, 1929 (P.L.177,
13 No.175), known as The Administrative Code of 1929. All agent's
14 license fees for each domestic or foreign society, for life or
15 accident and health lines, shall be paid in full at time of
16 issuance of license and shall not be apportioned pro rata over
17 the initial license period. All fees collected shall be paid
18 daily into the State Treasury.
19 § 4573. Foreign societies.
20 (a) License required.--A foreign or alien society shall not
21 transact business in this Commonwealth without a license issued
22 by the commissioner. Any such society may be licensed to
23 transact business in this Commonwealth upon filing with the
24 commissioner:
25 (1) A certified copy of its charter or articles of
26 incorporation.
27 (2) A copy of its constitution and bylaws, certified by
28 its secretary or corresponding officer.
29 (3) A statement of its business under oath of its
30 president and secretary or corresponding officers in a form
19850H1962B2642 - 623 -
1 prescribed by the commissioner, duly verified by an
2 examination satisfactory to the commissioner, made by the
3 supervising insurance official of its home state or other
4 state, province or country.
5 (4) A certificate from the proper official of its home
6 state, province or country that the society is legally
7 incorporated and licensed to transact business therein.
8 (5) Copies of its certificate forms.
9 (6) Such other information as the commissioner believes
10 necessary.
11 (7) Proof that its assets are invested in accordance
12 with this chapter.
13 (b) Qualifications.--Any foreign or alien society desiring
14 authority to transact business in this Commonwealth shall have
15 the qualifications required of domestic societies organized
16 under this chapter.
17 § 4574. Injunction, liquidation or receivership of domestic
18 societies.
19 (a) Findings and notification.--When the commissioner upon
20 investigation finds that a domestic society:
21 (1) has exceeded its powers;
22 (2) has failed to comply with any provision of this
23 chapter;
24 (3) is not fulfilling its contracts in good faith;
25 (4) has a membership of less than 400 after an existence
26 of one year or more; or
27 (5) is conducting business fraudulently or in a manner
28 hazardous to its members, creditors, the public or the
29 business;
30 he shall notify the society of the deficiencies. He shall
19850H1962B2642 - 624 -
1 immediately issue a written notice to the society requiring that
2 any such deficiencies be corrected. After this notice the
3 society shall have a 30-day period in which to comply with the
4 commissioner's request. If the society fails to comply, the
5 commissioner shall notify the society of his findings of
6 noncompliance and require the society to show cause, at a
7 hearing on a date named, why it should not be enjoined from
8 carrying on any business until the violation complained of has
9 been corrected, or why an action in quo warranto should not be
10 commenced against the society.
11 (b) Presentation to Attorney General.--If on the hearing
12 date the society does not present sufficient reasons why it
13 should not be so enjoined or why such action should not be
14 commenced, the commissioner may present the facts relating
15 thereto to the Attorney General who shall, if he deems the
16 circumstances warrant, commence an action to enjoin the society
17 from transacting business or in quo warranto. An action under
18 this section shall not be recognized in any court unless
19 commenced by the Attorney General upon request of the
20 commissioner.
21 (c) Hearing.--If after a full hearing, after adequate notice
22 to the society, it appears that the society should be so
23 enjoined or liquidated or a receiver appointed, the court shall
24 enter the necessary order.
25 (d) Prerequisites for lifting injunction.--A society so
26 enjoined shall not have the authority to do business until all
27 of the following have occurred:
28 (1) The commissioner finds that the violation complained
29 of has been corrected.
30 (2) The costs of such action are paid by the society, if
19850H1962B2642 - 625 -
1 the court finds that the society was in default as charged.
2 (3) The court dissolves its injunction.
3 (4) The commissioner reinstates the certificate of
4 authority.
5 (e) Court order for liquidation.--If the court orders the
6 society liquidated, it shall be enjoined from carrying on any
7 further business. The receiver of the society shall proceed
8 immediately to take possession of the books, papers, money and
9 other assets of the society and, under the direction of the
10 court, proceed immediately to close the affairs of the society
11 and to distribute its funds to those entitled thereto. Whenever
12 a receiver is to be appointed for a domestic society, the court
13 shall appoint the commissioner as receiver.
14 (f) Applicability to voluntary discontinuance.--The
15 provisions of this section relating to hearing by the
16 commissioner, action by the Attorney General at the request of
17 the commissioner, hearing by the court, injunction and
18 receivership shall apply to a society which voluntarily
19 determines to discontinue business.
20 § 4575. Suspension, revocation or refusal of license to foreign
21 societies.
22 (a) Findings and notification.--When the commissioner upon
23 investigation finds that a foreign or alien society transacting
24 or applying to transact business in this Commonwealth:
25 (1) has exceeded its powers;
26 (2) has failed to comply with any of the provisions of
27 this chapter;
28 (3) is not fulfilling its contracts in good faith; or
29 (4) is conducting its business fraudulently or in a
30 manner hazardous to its members or creditors or the public;
19850H1962B2642 - 626 -
1 he shall notify the society of the deficiencies. He shall
2 immediately issue a written notice to the society requiring that
3 any such deficiencies be corrected. After the notice the society
4 shall have a 30-day period in which to comply with the
5 commissioner's request. If the society fails to comply, the
6 commissioner shall notify the society of his findings of
7 noncompliance and require the society to show cause, at a
8 hearing on a date named, why its license should not be
9 suspended, revoked or refused. If on the hearing date the
10 society does not present good and sufficient reason why the
11 action proposed by the commissioner should not be taken, he may
12 suspend or refuse the license of the society to do business in
13 this Commonwealth until satisfactory evidence is furnished to
14 him that the suspension or refusal should be withdrawn or he may
15 revoke the authority of the society to do business in this
16 Commonwealth.
17 (b) Continuation of contracts.--This section does not
18 prevent any such society from continuing in good faith all
19 contracts made in this Commonwealth during the time the society
20 was legally authorized to transact business.
21 § 4576. Application for injunction.
22 An application or petition for injunction with respect to any
23 regulatory law administered by the commissioner against any
24 domestic, foreign or alien society, or branch thereof, shall not
25 be recognized in any court unless made by the Attorney General
26 upon request of the commissioner.
27 § 4577. Licensure of fraternal insurance agents.
28 (a) Licensure requirement.--Agents of societies shall be
29 licensed in accordance with this section.
30 (b) Payment of commissions.--A society doing business in
19850H1962B2642 - 627 -
1 this Commonwealth shall not pay any commission or other
2 compensation to any person for any services in obtaining in this
3 Commonwealth any new contract of life, accident or health
4 insurance, or any new annuity contract, except to a licensed
5 fraternal insurance agent of the society.
6 (c) Issuance of license.--The commissioner may issue a
7 license to any person who has paid the annual license fee and
8 who has complied with the requirements of this section,
9 authorizing the licensee to act as a fraternal insurance agent
10 on behalf of any society named in the license which is
11 authorized to do business in this Commonwealth.
12 (d) Supporting documents.--A fraternal insurance agent's
13 license shall not be issued until there is on file in the office
14 of the commissioner the following documents:
15 (1) A written application by the prospective licensee,
16 in such form or forms and containing such information as the
17 commissioner may prescribe.
18 (2) A certificate by the society to be named in the
19 license, stating that the society has satisfied itself that
20 the named applicant is trustworthy and competent to act as
21 its fraternal insurance agent and that the society will
22 appoint the applicant to act as its agent if the license is
23 issued by the commissioner. This certificate shall be
24 executed and acknowledged by an officer or managing agent of
25 the society.
26 (e) Types of licenses.--Except as otherwise provided in this
27 section, fraternal insurance agents shall be licensed as life or
28 accident and health agents, or both, except that the examination
29 requirements of such provisions shall not apply to:
30 (1) Any fraternal insurance agent who was in the service
19850H1962B2642 - 628 -
1 of a society on January 29, 1978.
2 (2) A fraternal insurance agent who, in the preceding
3 calendar year, has solicited and procured life insurance
4 contracts on behalf of any society in an amount of insurance
5 not in excess of $100,000 or, in the case of any other kinds
6 of insurance which the society might write, on the persons of
7 not more than 25 individuals and who has received or will
8 receive a commission or compensation therefor.
9 (f) Denial of license.--The commissioner may refuse to issue
10 or renew any fraternal insurance agent's license if in his
11 judgment the proposed licensee is not trustworthy and competent
12 to act as such an agent, or has given cause for revocation or
13 suspension of the license, or has failed to comply with any
14 prerequisite for the issuance or renewal of the license.
15 (g) License terms.--The term, expiration, renewal
16 procedures, termination notice requirements and the causes for
17 revocation or suspension of the license shall be as contained in
18 Chapter 11 (relating to agents and brokers) with respect to
19 licenses of life, accident and health agents, except as
20 inconsistent with this section.
21 (h) Definition.--As used in this section the term "fraternal
22 insurance agent" means any authorized or acknowledged agent or
23 representative of a society who acts as such in the
24 solicitation, negotiation or procurement or making of a life
25 insurance, accident and health insurance or annuity contract.
26 The term does not include:
27 (1) Any regular salaried officer or employee of a
28 licensed society whose services are devoted substantially to
29 activities other than the solicitation of insurance
30 contracts, and who receives for the solicitation of such
19850H1962B2642 - 629 -
1 contracts no commission or other compensation directly
2 dependent upon the amount of business obtained.
3 (2) Any member of a society whose solicitation or
4 negotiation of insurance contracts is incidental to securing
5 new members for his society and whose only remuneration
6 consists of prizes in the form of merchandise or payments of
7 nominal amounts.
8 SUBCHAPTER G
9 REGULATION OF OPERATIONS
10 Sec.
11 4581. Funds.
12 4582. Investments.
13 4583. Report of financial condition.
14 4584. Determination of reserves.
15 4585. Deferred payments as liability.
16 4586. Certification of valuation.
17 4587. Valuation standards.
18 4588. Excess reserves.
19 4589. Examination of societies.
20 4590. Misrepresentations.
21 4591. Discrimination and rebates.
22 4592. Penalties.
23 § 4581. Funds.
24 (a) Assets of society.--All assets shall be held, invested
25 and disbursed for the use and benefit of the society, and a
26 member or beneficiary shall not have or acquire individual
27 rights therein or become entitled to any apportionment or the
28 surrender of any part thereof, except as provided in the
29 contract.
30 (b) Use of funds.--A society may create, maintain, invest,
19850H1962B2642 - 630 -
1 disburse and apply any special funds necessary to carry out any
2 purpose permitted by the bylaws of the society.
3 (c) Statement of purposes and proportions of payments.--
4 Every society, the admitted assets of which are less than the
5 sum of its accrued liabilities and reserves under all of its
6 certificates when valued according to standards required for
7 life insurance companies for certificates issued after January
8 29, 1979, shall, in every provision of the bylaws of the society
9 for payments by members of the society, distinctly state the
10 purpose of the same and the proportion thereof which may be used
11 for expenses. The money collected for mortuary or disability
12 purposes or the net accretions thereto shall not be used for
13 expenses.
14 § 4582. Investments.
15 (a) General rule.--A society shall invest its funds only in
16 the investments authorized by this title for the investment of
17 assets of life insurance companies. Any foreign or alien society
18 permitted or seeking to do business in this Commonwealth which
19 invests its funds in accordance with the law of the state,
20 province or country in which it is incorporated is deemed to
21 meet the requirements of this section for the investment of
22 funds.
23 (b) Certain real estate.--In addition to the investment of
24 assets as prescribed under subsection (a), a fraternal benefit
25 society may purchase, receive, hold and convey real estate or
26 any interest therein for the purpose of maintenance or
27 construction of camps or recreational areas with necessary
28 facilities for all its members. Such assets shall be shown on
29 the annual statement at cost in the year acquired and may not
30 exceed 5% of other admitted assets of the society.
19850H1962B2642 - 631 -
1 § 4583. Report of financial condition.
2 (a) Requirement.--Every society transacting business in this
3 Commonwealth shall annually, on or before March 1, unless for
4 cause shown the time is extended by the commissioner, file with
5 the commissioner a true statement of its financial condition,
6 transactions and affairs for the preceding calendar year and pay
7 the applicable fee. The statement shall be in general form and
8 content as approved by the National Association of Insurance
9 Commissioners for fraternal benefit societies and as
10 supplemented by additional information as required by the
11 commissioner.
12 (b) Synopsis of report to members.--A synopsis of its annual
13 statement providing an explanation of the facts concerning the
14 condition of the society disclosed in the statement shall be
15 printed and mailed to each benefit member of the society not
16 later than June 1 of each year, or the synopsis may instead be
17 published in the society's official publication.
18 (c) Report of valuation of certificates.--As a part of the
19 annual statement each society shall, on or before March 1, file
20 with the commissioner a valuation of its certificates in force
21 at the end of the preceding calendar year. The commissioner may
22 for cause shown extend the time for filing the valuation to not
23 later than May 1. The report of valuation shall show as reserve
24 liabilities the difference between the present midyear value of
25 the promised benefits provided in the certificates of the
26 society in force and the present midyear value of the future net
27 premiums as are actually collected, not including therein any
28 value for the right to make extra assessments or any amount by
29 which the present midyear value of future net premiums exceeds
30 the present midyear value of promised benefits on individual
19850H1962B2642 - 632 -
1 certificates. At the option of the society the valuation may
2 instead show the net tabular value. The net tabular value as to
3 certificates issued prior to January 29, 1979, shall be
4 determined in accordance with the law applicable prior to
5 January 29, 1978, and as to certificates issued on or after
6 January 29, 1979, shall not be less than the reserves determined
7 according to the commissioners' reserve valuation method under
8 section 4584 (relating to determination of reserves). If the
9 premium charged is less than the tabular net premium according
10 to the basis of valuation used, an additional reserve equal to
11 the present value of the deficiency in such premiums shall be
12 maintained as a liability. The reserve liabilities shall be
13 properly adjusted if the midyear or tabular values are not
14 appropriate.
15 (d) Penalty.--A society which neglects to file the annual
16 statement in the form and within the time provided by this
17 section shall forfeit $100 for each day during which such
18 neglect continues and, upon notice by the commissioner to that
19 effect, its authority to do business in this Commonwealth shall
20 cease while such default continues.
21 § 4584. Determination of reserves.
22 (a) Uniform life insurance and endowment benefits.--Reserves
23 according to the commissioner's reserve valuation method for the
24 life insurance and endowment benefits of certificates providing
25 for a uniform amount of insurance and requiring the payment of
26 uniform premiums, shall be the excess, if any, of the present
27 value, at the date of valuation, of the future guaranteed
28 benefits provided for by such certificates, over the then
29 present value of any future modified net premiums therefor. The
30 modified net premiums for any such certificate shall be such a
19850H1962B2642 - 633 -
1 uniform percentage of the respective contract premiums for such
2 benefits that the present value, at the date of issue of the
3 certificate, of all such modified net premiums shall be equal to
4 the sum of the then present value of such benefits provided for
5 by the certificate and the excess of paragraph (1) over
6 paragraph (2) as follows:
7 (1) A net level premium equal to the present value, at
8 the date of issue, of such benefits provided for after the
9 first certificate year, divided by the present value, at the
10 date of issue, of an annuity of one a year payable on the
11 first and each subsequent anniversary of such certificate on
12 which a premium falls due; provided however, that this net
13 level annual premium shall not exceed the net level annual
14 premium on the 19-year premium whole life plan for insurance
15 of the same amount at an age one year higher than the age at
16 issue of the certificate.
17 (2) A net one year term premium for such benefits
18 provided for in the first certificate year.
19 (b) Other benefits.--Reserves according to the
20 commissioners' reserve valuation method for:
21 (1) life insurance benefits for varying amounts of
22 benefits or requiring the payment of varying premiums;
23 (2) annuity and pure endowment benefits;
24 (3) disability and accidental death benefits in all
25 certificates and contracts; and
26 (4) all other benefits except life insurance and
27 endowment benefits;
28 shall be calculated by a method consistent with the principles
29 of this section.
30 § 4585. Deferred payments as liability.
19850H1962B2642 - 634 -
1 The present value of deferred payments due under incurred
2 claims or matured certificates shall be deemed a liability of
3 the society and shall be computed upon mortality and interest
4 standards prescribed in sections 4586 (relating to certification
5 of valuation) and 4587 (relating to valuation standards).
6 § 4586. Certification of valuation.
7 The valuation and underlying data shall be certified by a
8 competent actuary or, at the expense of the society, verified by
9 the actuary of the commissioner of insurance of the state of
10 domicile of the society.
11 § 4587. Valuation standards.
12 (a) Valuation for earlier certificates.--The minimum
13 standards of valuation for certificates issued prior to January
14 29, 1979, shall be those provided by the law applicable
15 immediately prior to January 29, 1978, but not lower than the
16 standards used in the calculating of rates for such
17 certificates.
18 (b) Valuation for certificates after January 29, 1979.--The
19 minimum standard of valuation for certificates issued after
20 January 29, 1979, shall be 3.5% interest and the following
21 tables:
22 (1) For certificates of life insurance, the American Men
23 Ultimate Table of Mortality, with Bowerman's or Davis'
24 Extension thereof, or with the consent of the commissioner,
25 the Commissioners 1941 Standard Ordinary Mortality Table, the
26 Commissioners 1941 Standard Industrial Mortality Table or the
27 Commissioners 1958 Standard Ordinary Mortality Table, using
28 actual age of the insured for male risks and an age not more
29 than three years younger than the actual age of the insured
30 for female risks.
19850H1962B2642 - 635 -
1 (2) For annuity and pure endowment certificates,
2 excluding any disability and accidental death benefits in
3 such certificates, the 1937 Standard Annuity Mortality Table
4 or the Annuity Mortality Table for 1949, Ultimate, or any
5 modification of either of these tables approved by the
6 commissioner.
7 (3) For total and permanent disability benefits in or
8 supplementary to life insurance certificates, Hunter's
9 Disability Table, or the Class III Disability Table (1926)
10 modified to conform to the contractual waiting period, or the
11 tables of Period 2 disablement rates and the 1930 to 1950
12 termination rates of the 1952 Disability Study of the Society
13 of Actuaries with due regard to the type of benefit. Any such
14 table shall, for active lives, be combined with a mortality
15 table permitted for calculating the reserves for life
16 insurance certificates.
17 (4) For accidental death benefits in or supplementary to
18 life insurance certificates, the Inter-Company Double
19 Indemnity Mortality Table or the 1959 Accidental Death
20 Benefits Table. Either table shall be combined with a
21 mortality table permitted for calculating the reserves for
22 life insurance certificates.
23 (5) For noncancelable accident and health benefits, the
24 Class III Disability Table (1926) with conference
25 modifications or, with the consent of the commissioner,
26 tables based upon the society's own experience.
27 (c) Applicability of life insurance standards.--Any society
28 may value its certificates in accordance with valuation
29 standards authorized under this table for the valuation of
30 policies issued by life insurance companies.
19850H1962B2642 - 636 -
1 (d) Standards prescribed by commissioner.--The commissioner
2 may accept other standards for valuation if he finds that the
3 reserves produced thereby will not be less in the aggregate than
4 reserves computed in accordance with the minimum valuation
5 standard prescribed under subsection (a), (b) or (c). The
6 commissioner may vary the standards of mortality applicable to
7 all certificates of insurance on substandard lives or other
8 especially hazardous lives by any society authorized to do
9 business in this Commonwealth. Whenever the mortality experience
10 under all certificates valued on the same mortality table is in
11 excess of the expected mortality according to such table for a
12 period of three consecutive years, the commissioner may require
13 additional reserves when deemed necessary on account of such
14 certificates.
15 § 4588. Excess reserves.
16 Any society, with the consent of the commissioner of
17 insurance of the state of domicile of the society and under any
18 conditions he imposes, may establish and maintain reserves on
19 its certificates in excess of the reserves required thereunder,
20 but the contractual rights of any insured member shall not be
21 affected thereby.
22 § 4589. Examination of societies.
23 (a) Domestic societies.--The commissioner may visit and
24 examine into the affairs of any domestic society, and he shall
25 make such examination at least once in every four years. He
26 shall have free access to all books, papers and documents that
27 relate to the business of the society. The minutes of the
28 proceedings of the supreme legislative or governing body and of
29 the board of directors or corresponding body of a society shall
30 be in the English language. In making the examination, the
19850H1962B2642 - 637 -
1 commissioner may examine the officers, agents and employees or
2 other persons under oath in relation to the affairs,
3 transactions and condition of the society. A summary of the
4 report of the commissioner, and such recommendations or
5 statements of the commissioner as may accompany the report,
6 shall be read at the first meeting of the board of directors or
7 corresponding body of the society following the receipt thereof
8 and, if directed so to do by the commissioner, shall also be
9 read at the first meeting of the supreme legislative or
10 governing body of the society following receipt. A copy of the
11 report, recommendations and statements of the commissioner shall
12 be furnished by the society to each member of the board of
13 directors or other governing body. The expense of each
14 examination and of each valuation, including compensation and
15 actual expense of examiners, shall be paid by the society
16 examined or whose certificates are valued, upon statements
17 furnished by the commissioner.
18 (b) Foreign and alien societies.--The commissioner may
19 examine any foreign or alien society transacting or applying for
20 admission to transact business in this Commonwealth. He shall
21 have free access to all books, papers and documents that relate
22 to the business of the society. He may accept, in lieu of such
23 examination, the examination of the commissioner insurance of
24 the state, province or country where the society is organized.
25 The compensation and actual expenses of the examiners making any
26 examination or general or special valuation shall be paid by the
27 society examined or by the society whose certificate obligations
28 have been valued, upon statements furnished by the commissioner.
29 (c) Restrictions on publications.--The commissioner shall
30 not make public or permit to become public any financial
19850H1962B2642 - 638 -
1 statement, report or finding affecting the status, standing or
2 rights of any society, until a copy thereof is served upon the
3 society at its principal office and the society is afforded a
4 reasonable opportunity to comment on the material and to make
5 such showing in connection therewith as it may desire.
6 (d) Objections.--Societies which have been examined by the
7 commissioner have the privilege of objecting to the report of
8 examination within 30 days after reception of the report. If any
9 objection is made, the commissioner will grant a hearing to the
10 society before making the report available for public
11 inspection.
12 § 4590. Misrepresentations.
13 (a) Offense.--A person shall not cause or permit to be made,
14 issued or circulated in any form:
15 (1) Any misrepresentation or false or misleading
16 statement concerning the terms, benefits or advantages of any
17 fraternal insurance contract now issued or to be issued in
18 this Commonwealth, or the financial condition of any society.
19 (2) Any false or misleading estimate or statement
20 concerning the dividends or shares of surplus paid or to be
21 paid by any society on any insurance contract.
22 (3) Any incomplete comparison of an insurance contract
23 of one society with an insurance contract of another society
24 or insurer for the purpose of inducing the lapse, forfeiture
25 or surrender of any insurance contract. A comparison of
26 insurance contracts is incomplete if:
27 (i) it does not compare in detail:
28 (A) the gross rates, and the gross rates less
29 any dividend or other reduction allowed at the date
30 of the comparison; or
19850H1962B2642 - 639 -
1 (B) any increase in cash values, and all the
2 benefits provided by each contract for the possible
3 duration thereof as determined by the life expectancy
4 of the insured; or
5 (ii) it omits from consideration:
6 (A) any benefit or value provided in the
7 contract;
8 (B) any differences as to amount or period of
9 rates; or
10 (C) any differences in limitations or conditions
11 or provisions which directly or indirectly affect the
12 benefits.
13 In any determination of the incompleteness or misleading
14 character of any comparison or statement, it shall be
15 presumed that the insured had no knowledge of any of the
16 contents of the contract involved.
17 (b) Penalty.--Any person who violates any provision of this
18 section or knowingly receives any compensation or commission by
19 or in consequence of such violation, commits a misdemeanor of
20 the third degree and, upon conviction, shall be sentenced to pay
21 a fine of not less than $100 or to imprisonment for a term of
22 not less than 30 days or both. The violator shall in addition be
23 liable for a civil penalty in the amount of three times the sum
24 received by the violator as compensation or commission, which
25 penalty may be sued for and recovered by any person or society
26 aggrieved for his or its own use and benefit.
27 § 4591. Discrimination and rebates.
28 (a) Discrimination.--A society doing business in this
29 Commonwealth shall not make or permit any unfair discrimination
30 between benefit members, spouses or dependents of the same class
19850H1962B2642 - 640 -
1 and equal expectation of life in the premiums charged for
2 certificates of insurance, in the dividends or other benefits
3 payable thereon or in any other of the terms and conditions of
4 the contracts it makes.
5 (b) Rebates.--A society, agent or solicitor shall not
6 directly or indirectly offer, promise, allow, give, set off or
7 pay any valuable consideration or inducement to or for insurance
8 on any risk authorized to be taken by the society, which is not
9 specified in the certificate. A member shall not receive or
10 accept, directly or indirectly, any rebate, favor or advantage,
11 share in the dividends or other benefits or any valuable
12 consideration or inducement not specified in the contract of
13 insurance.
14 § 4592. Penalties.
15 (a) False statements.--A person shall not willfully make a
16 false or fraudulent statement in or relating to an application
17 for membership or for the purpose of obtaining money from or a
18 benefit in any society.
19 (b) Solicitation by unlicensed society.--Any person who
20 solicits membership for or in any manner assists in procuring
21 membership in any society not licensed to do business in this
22 Commonwealth commits a summary offense and, upon conviction,
23 shall be fined not less than $500 nor more than $1,000.
24 (c) Other criminal penalties.--Any person guilty of a
25 willful violation of, or neglect or refusal to comply with this
26 chapter for which a penalty is not otherwise prescribed, commits
27 a misdemeanor of the third degree and, upon conviction, shall be
28 sentenced to pay a fine not exceeding $500.
29 (d) Civil penalties.--Upon satisfactory evidence of a
30 violation of this chapter, the commissioner may, in lieu of
19850H1962B2642 - 641 -
1 seeking criminal prosecution, suspend, revoke or refuse to renew
2 the license of the offending party or impose a civil penalty of
3 not more than $1,000 for each violation.
4 CHAPTER 47
5 MUTUAL COMPANIES
6 Sec.
7 4701. Definition.
8 4702. Licensing of foreign or alien companies.
9 4703. Investment of assets.
10 4704. Investments in real estate.
11 4705. Policy provisions.
12 4706. Countersigning and delivery of policies.
13 4707. Premiums.
14 4708. Reserves.
15 4709. Assessments.
16 4710. Loans to companies.
17 4711. Surplus.
18 § 4701. Definition.
19 As used in this chapter the term "mutual company" means a
20 mutual insurance company, other than a mutual life insurance
21 company.
22 § 4702. Licensing of foreign or alien companies.
23 Any foreign mutual company authorized to transact the
24 business of insurance on the mutual plan may, on application,
25 obtain authority to transact the kinds of insurance authorized
26 by its charter or articles of association, subject to its
27 compliance with the provisions and requirements of this title
28 applicable to mutual companies transacting such insurance. Any
29 alien mutual insurance company desiring such authority shall
30 make and maintain the deposit required of alien stock insurance
19850H1962B2642 - 642 -
1 companies transacting the same kind of insurance. Such authority
2 shall be subject to all the provisions of law relating to
3 information to and examinations by the commissioner, annual
4 reports, taxes and the renewal of certificates of authority
5 applicable to stock insurance companies transacting the same
6 kinds of insurance, except as otherwise provided in this
7 chapter.
8 § 4703. Investment of assets.
9 A domestic mutual company shall not invest any of its assets
10 except in accordance with this title as it relates to the
11 investment of the capital and surplus of domestic stock
12 insurance companies authorized to transact the same class or
13 classes of insurance, and in accordance with the following
14 provisions:
15 (1) A mutual company that writes assessable policies
16 shall invest its assets only in accordance with the
17 provisions of this title relating to the investment of the
18 capital of domestic stock insurance companies authorized to
19 transact the same class or classes of insurance.
20 (2) A mutual company that writes nonassessable policies
21 shall invest its assets in accordance with the provisions of
22 this title relating to the investment of the capital of
23 domestic stock insurance companies authorized to transact the
24 same class or classes of insurance, and may invest any of its
25 excess over and above an amount equal to the minimum capital
26 requirements of such stock companies in accordance with the
27 provisions of this title relating to the investment of the
28 surplus of domestic stock insurance companies authorized to
29 transact such class or classes of insurance.
30 § 4704. Investments in real estate.
19850H1962B2642 - 643 -
1 A domestic mutual company may purchase, receive, hold and
2 convey only the following kinds of real estate:
3 (1) Real estate necessary for its accommodation in the
4 transaction of its business.
5 (2) Real estate conveyed to it in satisfaction of debts
6 previously contracted in the course of its dealings.
7 (3) Real estate purchased at sales upon judgments,
8 decrees or mortgages obtained or made for debts due the
9 company or for debts due other persons if the company has
10 liens or encumbrances on the same, and the purchase is
11 believed necessary to save the company from loss.
12 All real estate other than that purchased and held under
13 paragraph (1) shall be sold and disposed of within five years
14 after the company has acquired title thereto.
15 § 4705. Policy provisions.
16 Mutual companies may insert in any form of policy prescribed
17 by this title any provision or condition required by its plan of
18 insurance which is not inconsistent or in conflict with this
19 title. The policy, in lieu of conforming to the language and
20 form prescribed by this title, may conform thereto in substance,
21 if the policy includes a provision or endorsement reciting that
22 the policy shall be construed as if in the language and form
23 prescribed by this title, and a copy of the policy and
24 endorsements is first filed with and is not disapproved by the
25 commissioner.
26 § 4706. Countersigning and delivery of policies.
27 A mutual company shall comply with the provisions of this
28 title applicable to stock insurance companies transacting the
29 same kind of insurance, requiring that policies be countersigned
30 and delivered through a resident agent, unless no commission is
19850H1962B2642 - 644 -
1 paid to any local agent on the policy.
2 § 4707. Premiums.
3 (a) Maximum premium.--The maximum premium payable by any
4 member of a mutual company shall be expressed in the policy or
5 in the application for the insurance if attached to the policy.
6 The maximum premium shall be a cash premium and an additional
7 contingent premium not less than the cash premium or may be
8 solely a cash premium.
9 (b) Surplus.--A policy shall not be issued for a cash
10 premium without an additional contingent premium, unless the
11 company has and maintains a surplus which is not less in amount
12 than the minimum capital required of domestic stock insurance
13 companies authorized to transact the same class or classes of
14 insurance.
15 (c) Nonassessable policies.--Before a mutual company may
16 issue a nonassessable policy, the president and secretary shall
17 furnish the commissioner a certified copy of the resolution of
18 the board of directors providing for the issuance of a
19 nonassessable policy, and shall certify that the company
20 possesses a surplus as required under subsection (b) and that
21 the company is otherwise qualified under its charter and bylaws.
22 When the commissioner is satisfied that the company meets the
23 requirements as certified, he shall issue to the company a
24 certificate of authority for the issuance of nonassessable
25 policies. Any nonassessable policy issued while the certificate
26 is in force shall remain nonassessable under all conditions,
27 including any surplus deficiency and including liquidation of
28 the company. This certificate shall continue in effect until
29 revoked under this section. The president and secretary of the
30 company shall file with the commissioner, on or before April 1
19850H1962B2642 - 645 -
1 of each year, a certification that the resolution of the board
2 of directors providing for the issuance of nonassessable
3 policies has not been modified or revoked and that the company
4 has the surplus as required under subsection (b). The
5 commissioner may, after hearing, revoke the certificate of
6 authority to issue a nonassessable policy if he finds that the
7 company does not have the surplus as required under subsection
8 (b), and shall revoke the certificate upon receipt of
9 certification by the president and secretary that the company no
10 longer qualifies to issue nonassessable policies.
11 (d) Violations and penalties.--Any officer or director who
12 willfully makes a false certification that the company possesses
13 the surplus as required under subsection (b) commits a
14 misdemeanor of the third degree and shall, upon conviction, be
15 sentenced to pay a fine of not less than $1,000 or more than
16 $5,000 or to imprisonment for not more than one year, or both.
17 § 4708. Reserves.
18 A mutual company shall maintain unearned premium and other
19 reserves separately, for each kind of insurance, upon the same
20 basis as that required of domestic stock insurance companies
21 transacting the same kind of insurance, except that the
22 commissioner may, by written order, fix a different basis of
23 reserve for losses and claim in workmen's compensation
24 insurance. Any reserve for losses or claims based upon the
25 premium income shall be computed upon the net premium income,
26 after deducting any so-called dividend or premium returned or
27 credited to the member. The provisions relating to unearned
28 premium reserve do not apply to a policy issued by a domestic
29 mutual fire insurance company under the authority of section
30 3302(b)(1) (relating to authorized classes of insurance) if the
19850H1962B2642 - 646 -
1 policy includes or if a promissory note attached thereto
2 includes a limited or unlimited liability to assessment.
3 § 4709. Assessments.
4 (a) General rule.--A mutual company lacking assets at least
5 equal to the unearned premium reserve and other liabilities
6 shall make an assessment upon its members liable to assessment
7 to provide for the deficiency. The assessment shall be against
8 each member in proportion to the liability as expressed in his
9 policy.
10 (b) Limitations.--An assessment shall not be made without
11 the prior written approval of the commissioner. A member shall
12 not be assessed for any loss that occurred when his policy was
13 not in effect, and an assessment shall not be made after two
14 years from the expiration or cancellation date of a policy. For
15 each year the policy is in force, the assessment shall be an
16 amount not greater than the annual or the average yearly cost or
17 premium of the policy for the period it has been in effect. The
18 assessment shall not exceed two times the average yearly cost or
19 premium of the policy for the period it has been in effect.
20 (c) Powers of commissioner.--The commissioner may, by
21 written order, relieve the company from an assessment or other
22 proceedings to restore its assets during the time fixed in such
23 order. Any domestic company which is deficient in providing the
24 unearned premium reserve may, notwithstanding the deficiency, be
25 authorized under this chapter on the condition that it shall
26 each year thereafter reduce the deficiency by at least 15% of
27 the original amount thereof, and in such case it may increase
28 its assessments accordingly.
29 (d) Applicability.--This section is not applicable to
30 assessments made upon the members of a company by the
19850H1962B2642 - 647 -
1 commissioner pursuant to his authority under Chapter 59
2 (relating to fire and marine insurance).
3 § 4710. Loans to companies.
4 Any director, officer or member of any mutual company, or any
5 other person, may loan the company any sum of money necessary
6 for the purpose of its business or to enable it to comply with
7 any of the requirements of law. These loans and the interest
8 thereon as agreed upon, not exceeding 10% a year, shall not be a
9 liability or claim against the company or any of its assets, and
10 shall be repaid only out of the surplus earnings of the company.
11 Commission or promotion expenses shall not be paid in connection
12 with the loan and the amount thereof shall be reported in each
13 annual statement. The company shall prior to obtaining such a
14 loan provide the commissioner with such evidence as he may by
15 regulation prescribe concerning the making of any loan or the
16 making of any payments, whether of principal or interest, on
17 account thereof.
18 § 4711. Surplus.
19 A mutual company shall not transact the class of insurance
20 mentioned in section 3302(c)(1) (relating to authorized classes
21 of insurance) until it has and maintains at all times a surplus
22 over all liabilities including unearned premiums, computed in
23 accordance with this title, of not less than $250,000. This
24 section does not reduce the surplus required under section
25 4707(b) (relating to premiums).
1 PART IV
2 SPECIAL PROVISIONS RELATING TO
3 PARTICULAR CLASSES OF RISK
4 Chapter
19850H1962B2642 - 648 -
1 51. General Provisions (Reserved)
2 53. Life Insurance
3 55. Property and Casualty Insurance
4 57. Pennsylvania Fair Plan
5 59. Fire and Marine Insurance
6 61. Eligibility for Motor Vehicle Insurance
7 63. Motor Vehicle Financial Responsibility
8 65. Credit Insurance
9 67. Title Insurance
10 69. Health and Accident Insurance
11 71. Health Care Services Malpractice
12 73. Health Maintenance Organizations
13 74. Continuing Care Providers
14 75. Hospital Plan Corporations
15 77. Professional Health Services Plan Corporations
16 79. Surety Companies
17 81. Property and Casualty Insurance Guaranty Association
18 83. Life and health Insurance Guaranty Association
19 85. Insurance Premium Finance Companies
20 CHAPTER 51
21 GENERAL PROVISIONS
22 (Reserved)
23 CHAPTER 53
24 LIFE INSURANCE
25 Subchapter
26 A. Investments and Corporate Operations
27 B. Conduct of Business
28 C. Conversion of Stock Companies into Mutual Companies
29 D. Mutual Life Insurance Companies
30 E. Group Insurance
19850H1962B2642 - 649 -
1 F. Industrial Insurance
2 G. Limited Life Insurance Companies
3 SUBCHAPTER A
4 INVESTMENTS AND CORPORATE OPERATIONS
5 Sec.
6 5301. General investment provisions.
7 5302. Investment of capital and reserves.
8 5303. Investment of surplus and balance of reserves.
9 5304. Acquisition and retention of subsidiaries.
10 5305. Authorized holdings of real estate.
11 5306. Capital of foreign and alien stock companies.
12 5307. Separate accounts.
13 5308. Impairment of reserve liability.
14 5309. Penalty.
15 5310. Corporations operating under prior statutes.
16 5311. Dividends.
17 5312. Compensation.
18 5313. Vouchers for payment.
19 § 5301. General investment provisions.
20 Investment pursuant to section 5302 (relating to investment
21 of capital and reserves) or 5303 (relating to investment of
22 surplus and balance of reserves) and holding of real estate
23 pursuant to section 5305 (relating to authorized holdings of
24 real estate) by any domestic life insurance company shall be
25 subject to the following provisions:
26 (1) The commissioner may permit the company to invest
27 sufficient capital and reserves in the securities of a
28 foreign government in order to comply with the law of the
29 foreign government and transact business in the foreign
30 country.
19850H1962B2642 - 650 -
1 (2) An investment shall not be made in any
2 unincorporated business or enterprise other than a business
3 trust or partnership in which a life insurance company acts
4 as a limited partner. A subsidiary of a life insurance
5 company may act as a general partner.
6 (3) An investment shall not be made in any loan upon
7 personal security, but this paragraph does not forbid the
8 taking of a bona fide obligation with legal interest in
9 payment of any premium, the making of a collateral loan under
10 section 5303 or a loan for defraying expenses of the transfer
11 of an employee to a new place of employment with the company.
12 (4) An investment shall not be made in any loan upon the
13 stock, shares or obligations of the company or any other
14 insurance company transacting like classes of business, but
15 any stock life insurance company may, with the approval of
16 its board of directors, acquire, retain, cancel or dispose of
17 shares of its own capital stock. The company shall not
18 acquire such stock without the prior approval of the
19 commissioner, which shall be granted in accordance with the
20 regulations of the commissioner, or directly or indirectly
21 vote shares of its own stock held by it.
22 (5) An investment in a single mortgage shall not exceed
23 $10,000, or 2% of the total admitted assets of the company as
24 of December 31 next preceding the date of investment,
25 whichever is greater.
26 (6) Except for investments in subsidiaries under section
27 5304 (relating to acquisition and retention of subsidiaries),
28 no investment shall be made which would result in the cost of
29 total investments in, or in loans upon, any of the following
30 classes of investment exceeding the percentage of the
19850H1962B2642 - 651 -
1 admitted assets of the company on December 31 next preceding
2 the date of investment, which is specified for the class:
3 (i) Stock or shares of any one corporation, other
4 than stock or shares of a corporation incorporated for a
5 purpose stated in section 5305(6) or (7) (relating to
6 authorized holdings of real estate), all of whose stock
7 or shares, except directors' qualifying shares, was at
8 the time of acquisition owned by the insurance company or
9 by insurance companies authorized to do business in this
10 Commonwealth, 2%.
11 (ii) Common stock or common shares of corporations,
12 including stock or shares of regulated investment
13 companies, but excluding stock or shares of corporations
14 incorporated for a purpose stated in section 5305(6) or
15 (7) and excluding stock or shares guaranteed by
16 corporations whose obligations would be eligible for
17 investment under section 5302, 10%. The limitation for a
18 company having a surplus of less than $5,000,000 shall
19 not be greater than the amount of the surplus.
20 (iii) Stock or shares of corporations incorporated
21 for a purpose stated in section 5305(6) or (7) and
22 interests in real estate purchased, leased or owned
23 pursuant to section 5305(6) or (7), 15%.
24 (iv) Obligations and stock or shares of corporations
25 incorporated or existing under the law of the Dominion of
26 Canada, or any province thereof, and bonds or evidences
27 of indebtedness issued, assumed or guaranteed by any
28 province of the Dominion of Canada, or any county,
29 municipality or political subdivision of the Dominion of
30 Canada or any province thereof, 10%. The limitation for a
19850H1962B2642 - 652 -
1 company having a surplus of less than $5,000,000 shall
2 not be greater than the amount of the surplus.
3 (7) The cost to the company of improvements of each
4 parcel of real estate acquired under section 5305(7), plus
5 any costs incurred by it in improving and developing the
6 parcel, shall be written down annually on the books of the
7 company at a rate which will average not less than 2% of
8 those costs for each year, or part of a year, the parcel is
9 held after the date of acquisition.
10 (8) Any parcel of real estate acquired by a company
11 under any other paragraph of section 5305 may be held under
12 authority of section 5305(6) or (7) upon transfer on the
13 company's books as a real estate investment for the purpose
14 stated in section 5305(6) or (7), in which event the date of
15 transfer shall be considered to be the date of acquisition in
16 applying the provisions of this section to a parcel so
17 transferred. For the purpose of applying the limitation of
18 paragraph (6)(iii) of this section, the cost of the parcel
19 shall be deemed to be its book value on the date of transfer,
20 plus the estimated cost of improvement or development under
21 any improvement or development program contemplated by the
22 company.
23 (9) Any such company may own, maintain, improve, manage,
24 lease, receive income from, convey or assign any interest in
25 real estate after acquisition thereof, under the authority of
26 and subject to the provisions of section 5305 and this
27 section. Within such reasonable time as the commissioner
28 shall direct by written notice to the company, the company
29 shall sell and dispose of any interest in real estate held by
30 it under authority of section 5305(3), (4) or (5) and which
19850H1962B2642 - 653 -
1 has been held for a period of more than five years. The
2 commissioner shall so direct after giving due notice and
3 hearing and finding that the interest in real estate should
4 be disposed of by the company in the interest of its
5 policyholders, and that the interest of the company will not
6 suffer materially by a forced sale. Any such company
7 organized before May 9, 1947, having the power to receive and
8 execute trusts, may take, receive and hold estates and
9 property, real and personal, which may be granted, committed,
10 transferred or conveyed to it with its consent upon any trust
11 whatsoever at any time or by any Federal court or court of
12 this Commonwealth, and may administer, fulfill and discharge
13 the duties of the trust.
14 (10) With the approval of the commissioner, the company
15 may enter into agreements with one or more authorized
16 insurance companies whereby the companies shall participate
17 in ownership, management and control of real estate held or
18 to be acquired by the company or companies under section
19 5305(6) or (7) or held by a corporation whose stock is held
20 or to be acquired by such company or companies.
21 (11) Subject to paragraph (10), such company shall not
22 enter into any agreement to withhold any of its property from
23 sale, and the disposition of its property shall be at all
24 times within the control of its board of directors or
25 trustees.
26 (12) Sections 5302, 5303 and 5305 and this section do
27 not prevent the company from investing any of its capital,
28 reserve or surplus funds, as authorized by this title, or
29 from holding any of such funds in cash or deposits in banks
30 or trust companies or from acquiring or holding property
19850H1962B2642 - 654 -
1 taken in reorganization or foreclosure proceedings or which
2 may be obtained on account of any debt previously contracted.
3 (13) Any such company may continue its investment of any
4 of its capital, reserve or surplus funds in any corporate
5 bonds, notes or obligations held by it on May 9, 1947, in
6 corporations which have earned, in each of its three fiscal
7 years next preceding the investment, an amount equal to one
8 and one-half times the total interest on its debt.
9 (14) A security or investment of a class stated in
10 section 5303(2), (4), (5), (6), (7) or (8) shall not be
11 authorized for investment of reserve funds of the company if
12 at the date of investment its total investment in classes of
13 investment stated in section 5302 is less than the total of
14 its capital and three-fourths of its reserves.
15 (15) If any investment is made in a manner not
16 authorized by this chapter, the officers, directors and
17 trustees making or authorizing the investment shall be
18 personally liable for any loss resulting therefrom.
19 (16) Investments permitted under sections 5302(28) and
20 5303(10) shall be limited to 5% of the admitted assets of the
21 company. The limitation for a company having a surplus of
22 less than $5,000,000 shall not be greater than the amount of
23 the company's surplus. For the purposes of calculating these
24 limitations, the investments referred to under paragraph
25 (6)(iv) shall not be taken into account.
26 (17) Investments permitted under section 5303(11) shall
27 be limited to 5% of the admitted assets of the company.
28 (18) As used in this section the term "date of
29 investment" means the date of commitment in the case of a
30 commitment to invest.
19850H1962B2642 - 655 -
1 § 5302. Investment of capital and reserves.
2 Subject to section 5301 (relating to general investment
3 provisions), the capital and not less than three-fourths of the
4 reserves of any domestic life insurance company shall be
5 invested in the following classes of investment:
6 (1) Government obligations.--Bonds, notes or obligations
7 issued, assumed or guaranteed by the United States or the
8 Dominion of Canada or by any state.
9 (2) Governmental subdivision or local authority
10 obligations.--Valid and legally authorized bonds, notes or
11 obligations issued, assumed or guaranteed by:
12 (i) any political subdivision or water, sewer,
13 drainage, road or other governmental district or division
14 located in the United States or by any province in the
15 Dominion of Canada; or
16 (ii) any local authority of this Commonwealth or of
17 any state or of any province of the Dominion of Canada
18 if, by statutory or other legal requirements applicable
19 thereto, the bonds or other evidences of indebtedness of
20 the local authority are payable, as to principal and
21 interest, from taxes levied or by law required to be
22 levied, upon all taxable property or all taxable income
23 within the jurisdiction of any political subdivision of
24 which it is an instrumentality, or from revenues pledged
25 or otherwise appropriated or by law required to be
26 provided for the purpose of such payment.
27 (3) Railroad and public utility obligations.--Bonds,
28 notes or obligations issued, assumed or guaranteed by any
29 solvent domestic or foreign railroad or public utility
30 corporation.
19850H1962B2642 - 656 -
1 (4) Other corporate obligations.--Bonds, notes or
2 obligations issued, assumed or guaranteed by any other
3 domestic or foreign corporation whose income available for
4 fixed charges for the period of five fiscal years next
5 preceding the date of investment has averaged not less than
6 one and one-half times its average annual fixed charges
7 applicable to such period. As used in this paragraph the term
8 "income available for fixed charges" means income, after
9 deducting operating and maintenance expenses, depreciation
10 and depletion, and taxes other than Federal or State income
11 taxes, but excluding extraordinary nonrecurring items of
12 income or expense appearing in the regular financial
13 statements of the corporation or business trust. As used in
14 this paragraph the term "fixed charges" includes interest on
15 funded and unfunded debt and amortization of debt, discount
16 and expense. If income is determined in reliance upon
17 consolidated income statements of parent and subsidiary
18 corporations or business trusts, the income shall be
19 determined after provision for Federal and State income taxes
20 of subsidiaries, and after proper allowance for minority
21 stock interest, if any, and the required coverage of fixed
22 charges, are computed on a basis including fixed charges and
23 preferred dividends of subsidiaries, other than those payable
24 by subsidiaries to the parent corporation or business trust,
25 or to any other of such subsidiaries. In applying an income
26 test under this paragraph to the corporation, whether or not
27 in legal existence during the whole of the five year period
28 next preceding the date of investment, which has at any time
29 after the beginning of the period acquired the assets or the
30 outstanding shares of capital stock of any other corporation
19850H1962B2642 - 657 -
1 or business trust by purchase, merger, consolidation or
2 otherwise, substantially as an entirety, or has been
3 reorganized pursuant to the bankruptcy law, the income of the
4 other corporation or business trust or of the corporation or
5 business trust reorganized, available for interest and
6 dividends for the year period preceding acquisition or
7 reorganization may be included in the income of the
8 corporation or business trust for the period determined in
9 accordance with adjusted or pro forma consolidated income
10 statements covering that portion of the period, and giving
11 effect to all stock or shares outstanding and all fixed
12 charges existing immediately after acquisition or
13 reorganization.
14 (5) Trustee, receiver or equipment trust obligations.--
15 (i) Certificates, notes or obligations issued by
16 trustees or receivers of any domestic or foreign
17 corporation which is being administered under the
18 direction of any court, if the obligation is adequately
19 secured as to principal and interest.
20 (ii) Equipment trust obligations or certificates,
21 which are adequately secured, or other adequately secured
22 instruments, evidencing an interest in transportation
23 equipment, wholly or in part within the United States,
24 and a right to receive determined portions of rental,
25 purchase or other fixed obligatory payments for the use
26 or purchase of the transportation equipment.
27 (6) Acceptances and bills of exchange.--Bank and
28 bankers' acceptances, and other bills of exchange of the kind
29 and maturities made eligible pursuant to law for purchase in
30 the open market by Federal Reserve Banks.
19850H1962B2642 - 658 -
1 (7) Real estate loans.--Ground rents and bonds, notes or
2 other evidences of indebtedness, secured by mortgages or
3 trust deeds upon unencumbered real property located in the
4 United States, and in investments in the equity of the seller
5 under contracts for deeds covering the entire balance due on
6 bona fide sales of such real property. A loan guaranteed or
7 insured in full by the Administrator of Veterans' Affairs
8 pursuant to Servicemen's Readjustment Act of 1944 (58 Stat.
9 284, 38 U.S.C. § 1801 et seq.) may be subject to a prior
10 encumbrance. Real property shall not be considered to be
11 encumbered within the meaning of this paragraph by reason of
12 the existence of instruments reserving mineral, oil, water or
13 timber rights, rights-of-way, sewer rights, rights in walls
14 or driveways, liens inferior to the lien securing the loan of
15 the insurance company, or liens for taxes or assessments not
16 yet delinquent, or building restrictions or other restrictive
17 covenants, or any lease under which rents or profits are
18 reserved to the owner if, in any event, the security for the
19 loan is a first lien upon the real property, and if there is
20 no condition or right of reentry or forfeiture under which
21 the lien can be cut off, subordinated or otherwise disturbed.
22 A mortgage or trust deed, loan or investment in a seller's
23 equity under a contract for deed made or acquired by the
24 insurance company on any one property shall not at the date
25 of investment exceed two-thirds of the value of the real
26 property securing the loan, or subject to such contract
27 unless the loan is:
28 (i) insured by, or under a commitment to insure by
29 the Federal Housing Administrator or Commissioner
30 pursuant to the provisions of the National Housing Act
19850H1962B2642 - 659 -
1 (48 Stat. 1246);
2 (ii) guaranteed or insured by the Administrator of
3 Veterans' Affairs pursuant to the Servicemen's
4 Readjustment Act of 1944 except that if only a portion of
5 a loan is guaranteed, the limitation shall apply to the
6 portion not guaranteed;
7 (iii) upon real estate under lease to a corporation
8 incorporated or existing under the laws of the United
9 States or any state, whose income available for fixed
10 charges for the period of five fiscal years next
11 preceding the date of investment, has averaged not less
12 than one and one-half times its average annual fixed
13 charges applicable to that period, if there is pledged
14 and assigned as additional security for the loan and for
15 application thereon, a sufficient amount from the rentals
16 payable under the lease to provide for repayment of the
17 loan within the unexpired term of the lease; or
18 (iv) upon such terms that the principal thereof will
19 be amortized by repayments of principal at least once in
20 each year in amounts sufficient to repay the loan within
21 a period of not more than 30 years, and the loan is upon
22 improved real estate, and at the date of investment does
23 not exceed 90% of the value of the real estate securing
24 the loan.
25 (8) Purchase money securities.--Purchase money mortgages
26 or similar securities received by it upon the sale or
27 exchange of real property acquired under section 5305
28 (relating to authorized holdings of real estate).
29 (9) Federal Housing Administrators debentures.--
30 Debentures issued by the Federal Housing Administrator or
19850H1962B2642 - 660 -
1 Commissioner in settlement of claims pursuant to the National
2 Housing Act.
3 (10) National mortgage association securities.--
4 Securities of national mortgage associations or similar
5 national mortgage credit institutions organized under the
6 National Housing Act.
7 (11) Federal land bank, Federal intermediate credit bank
8 and bank for cooperatives securities.--Bonds, debentures and
9 other obligations of Federal land banks or Federal
10 intermediate credit banks issued under the Federal Farm Loan
11 Act (39 Stat. 360, 12 U.S.C. § 641 et seq.) or of banks for
12 cooperatives issued pursuant to the Farm Credit Act of 1933
13 (48 Stat. 257, 12 U.S.C. § 1131 et seq.).
14 (12) Loans upon leaseholds.--Loans upon leasehold
15 estates on unencumbered real estate located in the United
16 States, but no such loan shall exceed two-thirds of the value
17 of the leasehold at the date of investment, unless:
18 (i) the loan is guaranteed or insured by, or a
19 commitment to guarantee or insure the loan has been made
20 by, the Federal Housing Administrator or Commissioner
21 under the National Housing Act;
22 (ii) the leasehold is of improved real estate and
23 the loan provides for amortization by repayments of
24 principal at least once in each year in amounts
25 sufficient to repay the loan within a period of four-
26 fifths of the unexpired term of the leasehold, but within
27 a period of not more than 30 years, and does not exceed
28 90% of the value of the leasehold at the date of
29 investment;
30 (iii) the real estate is under lease to a
19850H1962B2642 - 661 -
1 corporation incorporated or existing under the laws of
2 the United States or any state, whose income available
3 for fixed charges for the period of five fiscal years
4 next preceding the date of investment has averaged not
5 less than one and one-half times its average annual fixed
6 charges applicable to that period, if there is pledged
7 and assigned as additional security for the loan and for
8 application thereon a sufficient amount from the rentals
9 payable under the lease to provide for repayment of the
10 loan within the unexpired term of the lease; and
11 (iv) the terms of the loan require repayments of
12 principal at least once in each year in amounts
13 sufficient to repay the loan within the term of the
14 leasehold unexpired at the date of investment, unless a
15 shorter period is required under subparagraph (ii).
16 (13) Policy loans.--Loans upon the security of its own
17 policies not exceeding the net value of the policy at the
18 time of making the loan.
19 (14) Savings and loan shares.--Shares of any Federal
20 savings and loan association, or of any building and loan or
21 savings and loan association, to the extent that the
22 withdrawal or repurchasable value of the shares is insured by
23 the Federal Savings and Loan Insurance Corporation under the
24 National Housing Act.
25 (15) Federal Savings and Loan Insurance Corporation
26 obligations.--Bonds, notes or obligations issued, assumed or
27 guaranteed by the Federal Savings and Loan Insurance
28 Corporation under the National Housing Act.
29 (16) Federal Home Loan Bank obligations.--Bonds, notes
30 or obligations issued, assumed or guaranteed by the Federal
19850H1962B2642 - 662 -
1 Home Loan Bank or by the Federal Home Loan Bank Board under
2 the Federal Home Loan Bank Act (47 Stat. 725, 12 U.S.C. §§
3 1421-1449).
4 (17) International Bank obligations.--Bonds, notes or
5 obligations issued, assumed or guaranteed by the
6 International Bank for Reconstruction and Development.
7 (18) Real estate.--Such real estate located in the
8 United States as the company is authorized to hold under
9 section 5305(1), (2), (3), (4) or (5).
10 (19) Business Development Credit Corporation shares.--
11 Shares of State and regional business development credit
12 corporations formed under the law of this Commonwealth.
13 (20) Pennsylvania Housing Finance Agency bonds and
14 notes.--Bonds and notes of the Pennsylvania Housing Finance
15 Agency created by the act of December 3, 1959 (P.L.1688,
16 No.621), known as the Housing Finance Agency Law.
17 (21) Inter-American Development Bank obligations.--
18 Bonds, notes and obligations issued, assumed or guaranteed by
19 the Inter-American Development Bank.
20 (22) Pennsylvania Civil Disorder Authority.--Bonds,
21 notes and obligations issued by the Pennsylvania Civil
22 Disorder Authority.
23 (23) Asian Development Bank obligations.--Bonds, notes
24 and obligations issued, assumed or guaranteed by the Asian
25 Development Bank.
26 (24) Investments of surplus and other reserves.--An
27 investment made under section 5303 (relating to investment of
28 surplus and balance of reserves) if the investment would at
29 any time qualify under this section, had it been made under
30 this section.
19850H1962B2642 - 663 -
1 (25) Interest-bearing accounts of banks.--
2 (i) Interest-bearing deposits or certificates of
3 deposit in any bank, bank and trust company, savings bank
4 or national banking association organized under Federal
5 or state law if it is not made or deposited in any such
6 institution or other financial institution, or savings
7 association or Federal savings and loan association which
8 is directly or indirectly through a holding company or in
9 any other manner affiliated with any insurance entity
10 making or depositing such interest-bearing deposits or
11 certificates of deposit. Funds invested in certificates
12 of deposit shall not be encumbered directly or indirectly
13 as security, collateral or as counterbalance funds for
14 any subsidiary, affiliate or associated concern as
15 defined in section 3568 (relating to approval of
16 acquisitions by commissioner) or any other person except
17 as specifically approved by written order of the
18 commissioner.
19 (ii) The total of the interest-bearing deposits and
20 certificates of deposit in any single depository or
21 branches thereof shall not at any time exceed 10% of the
22 company's total admitted invested assets at the time of
23 the investment or at any subsequent annual statement
24 reporting date, or the maximum amount covered by Federal
25 insurance, whichever is larger. The aggregate of all such
26 deposits in all depositories described in this
27 subparagraph or any branches thereof shall not at any
28 time exceed 25% of the company's total admitted invested
29 assets at the time of the investment nor at any
30 subsequent annual statement reporting date, unless the
19850H1962B2642 - 664 -
1 deposit in any single depository or branches thereof is
2 limited to the Federal insurance limitation. The
3 percentage limitations under this subparagraph do not
4 apply to a hospital plan corporation operating under
5 Chapter 75 (relating to hospital plan corporations) or to
6 a professional health service corporation operating under
7 Chapter 77 (relating to professional health services plan
8 corporations).
9 (iii) Whenever the investments authorized by this
10 paragraph exceed the maximum amounts mentioned in
11 subparagraph (ii), the investments shall be reduced to
12 comply with subparagraph (ii) within 90 days of the
13 occurrence of the excess or at the earliest maturity date
14 or the next optional renewal date, exercisable by either
15 holder or insurer, of any such investment. Any company
16 which fails or neglects to reduce the excess as required
17 by this subparagraph shall pay a penalty not to exceed
18 $100 for each day the violation continues. This penalty
19 shall be imposed by the commissioner after appropriate
20 hearing. No value as an admitted asset shall be allowed
21 such excess.
22 (26) Accounts of savings associations.--
23 (i) Savings accounts or certificates of deposit of
24 any savings association incorporated under the law of
25 this Commonwealth or of any savings and loan association
26 incorporated under Federal law if it is not made,
27 deposited in or opened in any such institution or any
28 bank, bank and trust company, savings bank, national
29 banking association or other financial institution which
30 is directly or indirectly through a holding company or in
19850H1962B2642 - 665 -
1 any other manner whatsoever affiliated with any insurance
2 entity making, depositing or opening such savings
3 accounts. Funds invested in certificates of deposit shall
4 not be encumbered directly or indirectly as security,
5 collateral or as counterbalance funds for any subsidiary,
6 affiliate or associated concern or any other person
7 except as specifically approved by written order of the
8 commissioner.
9 (ii) The total of such savings accounts and
10 certificates of deposit in any single depository or
11 branches thereof shall not at any time exceed 10% of the
12 company's total admitted invested assets at the time of
13 the investment or at any subsequent annual statement
14 reporting date, or the maximum amount covered by Federal
15 insurance, whichever is larger. The aggregate of all such
16 savings accounts and certificates of deposit in all
17 depositories described in this subparagraph or any
18 branches thereof shall not at any time exceed 25% of the
19 company's total admitted invested assets at the time of
20 the investment nor at any subsequent annual statement
21 reporting date, unless the deposits in any single
22 depository or branches thereof is limited to the maximum
23 amount covered by Federal insurance. The percentage
24 limitations under this subparagraph do not apply to a
25 hospital plan corporation operating under Chapter 75 or
26 to a professional health service corporation operating
27 under Chapter 77.
28 (iii) Whenever the investments authorized by this
29 paragraph exceed the maximum amounts mentioned in
30 subparagraph (ii), the investments shall be reduced to
19850H1962B2642 - 666 -
1 comply with subparagraph (ii) within 90 days of the
2 occurrence of the excess or at the earliest maturity date
3 or the next optional renewal date, exercisable by either
4 holder or issuer, of any such investment. Any company
5 which fails or neglects to reduce such excess shall be
6 subject to the penalties set forth in paragraph
7 (25)(iii).
8 (27) Junior mortgages and trust deeds.--Mortgage loans
9 and trust deeds as defined in paragraphs (7) and (12) may be
10 made upon real estate and upon leaseholds which are then
11 encumbered by mortgage liens thereon if:
12 (i) the holder of the junior mortgage has the right
13 to:
14 (A) make all payments required to be made by the
15 obligor under the terms of all senior mortgages;
16 (B) cure any default under senior mortgages; or
17 (C) acquire at any time by prepayment the entire
18 interest of the holders of the senior mortgages;
19 (ii) the instrument evidencing the lien or mortgage
20 by which the obligation of the borrower to the insurer
21 under the loan is secured is recorded and the lien is
22 insured under a policy of title insurance in an amount
23 not less than the total amount of the obligations of the
24 borrower to the insurer under the loan;
25 (iii) the loan when added to the unpaid principal
26 amount of the senior mortgages does not exceed the
27 applicable amounts provided in paragraphs (7) and (12)
28 and otherwise conforms to the requirements of those
29 paragraphs; and
30 (iv) the investments do not exceed the aggregate of
19850H1962B2642 - 667 -
1 5% of the admitted assets of the company.
2 (28) Foreign obligations.--Bonds, notes, obligations or
3 other investments of or in any business or governmental unit
4 in or of any foreign country which are of the same kinds,
5 classes and investment grades as those eligible for
6 investment under this section in the United States.
7 § 5303. Investment of surplus and balance of reserves.
8 Except as provided in section 5304 (relating to acquisition
9 and retention of subsidiaries) and subject to section 5301
10 (relating to general investment provisions), any surplus funds
11 and the balance of the reserves of any domestic life insurance
12 company may be invested in the following classes of investment:
13 (1) Investments authorized for capital and reserves.--
14 Any of the classes of investment stated in section 5302
15 (relating to investment of capital and reserves).
16 (2) Corporate stock or shares.--Stock or shares of any
17 solvent corporation, incorporated under Federal or state law
18 or the law of the Dominion of Canada or any province thereof.
19 (3) Shares of regulated investment companies.--Stocks or
20 shares of any regulated investment company formed under
21 Federal or state law or the law of the Dominion of Canada or
22 any province thereof. As used in this paragraph the term
23 "regulated investment company" means a corporation or
24 company:
25 (i) registered as an investment company under the
26 Investment Company Act of 1940 (54 Stat. 789, 15 U.S.C. §
27 80a-1 et seq.);
28 (ii) having no preferred stock, bonds, loans or any
29 other outstanding securities with preference or priority
30 as to assets or earnings over its common stock; and
19850H1962B2642 - 668 -
1 (iii) having net assets of not less than $10,000,000
2 at the date of purchase except that this limitation does
3 not apply to an investment in stock or shares of a
4 regulated investment company, the principal underwriter
5 or investment advisor of which is, or in the case of an
6 investment company which has not yet commenced operation,
7 is proposed to be, a subsidiary of the life insurance
8 company making the investment.
9 (4) Corporate obligations.--Bonds, notes or obligations
10 issued, assumed or guaranteed by any solvent corporation
11 incorporated or existing under Federal or state law or the
12 law of the Dominion of Canada or any province thereof.
13 (5) Real estate.--Such real estate located in the United
14 States as it is authorized to hold under section 5305(6) or
15 (7) (relating to authorized holdings of real estate).
16 (6) Canadian governmental subdivision obligations.--
17 Valid and legally authorized bonds, notes or obligations
18 issued, assumed or guaranteed by any province, municipality
19 or political subdivision of the Dominion of Canada.
20 (7) Collateral loans.--Loans upon the pledge of
21 securities stated in this section, or section 5302, if the
22 value of the security at the date of investment is at least
23 20% more than the amount loaned thereon.
24 (8) Other loans or investments.--Loans or investments
25 not otherwise authorized by this section, to an amount not
26 exceeding in the aggregate 5% of the admitted assets of the
27 company.
28 (9) Machinery and equipment.--Transportation equipment,
29 communications equipment, electronic computer or data
30 processing machines and systems, nuclear fuels, furnishings
19850H1962B2642 - 669 -
1 and fixtures owned or operated by retail establishments, and
2 machinery and equipment owned or operated by manufacturing,
3 processing or financial establishments or by public utility
4 corporations or business trusts, wholly or in part within the
5 United States or the Dominion of Canada, which are or will
6 become subject to contracts for the sale or use thereof under
7 which contractual payments are to be made which may
8 reasonably be expected to return the principal of, and
9 provide earnings on, the investment within the anticipated
10 useful life of the property, which shall be not less than
11 five years. Such investments shall not be made by a company
12 having a surplus of less than $5,000,000, and the total of
13 such investments shall not exceed 10% of the admitted assets
14 of the company.
15 (10) Foreign obligations and securities.--Bonds, notes,
16 obligations, stocks, shares or other investments of or in any
17 business or governmental unit in or of any foreign country
18 which are of the same kinds, classes and investment grades as
19 those authorized for investment under this section.
20 (11) Mortgage pass-through certificates.--Certificates
21 evidencing an undivided interest in a pool of conventional
22 mortgage loans secured by first mortgages or deeds of trust
23 on improved residential one-to-four family properties located
24 in the United States if:
25 (i) the mortgage loans are originated by a savings
26 and loan association, savings bank, commercial bank or
27 similar banking institution which is supervised and
28 examined by a Federal or State authority or are
29 originated by a mortgagee approved by the Secretary of
30 Housing and Urban Development under sections 203 and 211
19850H1962B2642 - 670 -
1 of the National Housing Act (48 Stat. 1246);
2 (ii) the mortgage loans are assigned to a bank as
3 trustee for the benefit of the holders of such
4 certificates; and
5 (iii) the certificates are rated within the three
6 highest grades by a nationally recognized investment
7 rating service or, if not so rated, the mortgage loans
8 comprising the pool are insured under a pool mortgage
9 guaranty insurance policy or policies in an original
10 aggregate amount of not less than 5% of the initial
11 aggregate principal amount of the mortgage loans in the
12 pool.
13 § 5304. Acquisition and retention of subsidiaries.
14 (a) Authorization.--In addition to investments in
15 subsidiaries to the extent authorized under section 5301(6)(i)
16 and (ii) (relating to general investment provisions), any
17 surplus funds and the balance of the reserves of any domestic
18 life insurance company or limited life insurance company may,
19 subject to this section, be used to invest in, acquire and
20 retain the stock, including voting trust certificates, interim
21 receipts and other similar instruments representing such stock,
22 of any solvent life insurance company transacting like classes
23 of business or company which grants and disposes of variable
24 life insurance contracts or variable annuity contracts.
25 (b) Control requirement.--An investment pursuant to this
26 section shall not be retained by any domestic life insurance
27 company or limited life insurance company unless, at all times
28 after one year from the date of its acquisition, it holds a
29 majority of the total issued and outstanding stocks or shares of
30 the company having voting powers.
19850H1962B2642 - 671 -
1 (c) Approval by commissioner.--Investments in excess of
2 those permitted by section 5301(6)(i) and (ii) shall not be made
3 unless a notice of intention of the proposed acquisition has
4 been filed with the commissioner. The commissioner may
5 disapprove the acquisition, or at any time thereafter order the
6 discontinuance of the investment if he finds that the investment
7 is prejudicial to the interest of the policyholders or the
8 members or stockholders of the corporation or that the
9 investment does not comply with this section.
10 (d) Amount of investment.--A domestic life insurance company
11 or limited life insurance company shall not make any investment
12 under this section if the investment would bring the aggregate
13 cost of its total of such investments to an amount in excess of
14 the greater of 35% of the company's surplus to policyholders or
15 50% of its surplus over its liabilities and capital. For the
16 purposes of this subsection, the cost of a company's total
17 investment shall include its loans, advances and contributions
18 together with, but without duplication, the cost of bonds, notes
19 and stocks of the life insurance companies invested in. In
20 determining the financial condition of a domestic life or
21 limited life company, the aggregate value of the total
22 investment by the company under this section shall not be
23 allowed as an admitted asset in excess of 50% of its surplus to
24 policyholders or 60% of its surplus over and above its
25 liabilities and capital, whichever is greater. As used in this
26 subsection the term "surplus to policyholders" means the excess
27 of total admitted assets over the liabilities which shall be the
28 sum of all capital and surplus accounts minus any impairments
29 thereof.
30 (e) Company invested in.--Any life insurance company whose
19850H1962B2642 - 672 -
1 stock is held by a domestic life or limited life company under
2 this section, shall make no investment in or loan or advance to
3 the investing company or to any other company whose stock is
4 held by the investing company under this section. Except with
5 the approval of the commissioner, none of such companies shall
6 make transfers to any other such companies of any of its assets
7 other than transfers in connection with reasonable fees and
8 expenses, interest premiums and annuity considerations, debt
9 repayments and dividends; the commissioner shall grant approval
10 if the transfer is not prejudicial to the interests of the
11 policyholders or the members or stockholders of such companies.
12 § 5305. Authorized holdings of real estate.
13 Subject to section 5301 (relating to general investment
14 provisions), any domestic life insurance company may purchase,
15 receive, hold and convey real estate or any interest therein if
16 the real estate is:
17 (1) required for its convenient accommodation in the
18 transaction of its business with reasonable regard to future
19 needs;
20 (2) residential real estate purchased from employees
21 transferred or about to be transferred to new places of
22 employment with the company;
23 (3) acquired in satisfaction or on account of loans,
24 mortgages, liens, judgments or decrees previously owing to it
25 in the course of its business;
26 (4) acquired in part payment of the consideration of the
27 sale of real property owned by it if the transaction will
28 result in a net reduction in the company's investment in real
29 estate;
30 (5) reasonably necessary for the purpose of maintaining
19850H1962B2642 - 673 -
1 or enhancing the sale value or real property previously
2 acquired or held by it under paragraph (1), (2), (3) or (4);
3 (6) purchased, leased or owned for the purpose of or
4 constructing and maintaining housing projects, which may
5 include accommodations for retail stores, shops, offices and
6 other community services reasonably incidental thereto, and
7 any improvements thereon, except for hotels; or
8 (7) purchased, leased or owned, for the purpose of
9 renting for business, commercial or industrial use or for the
10 development, improvement, construction or maintenance for
11 such purpose, as an investment for the production of income.
12 § 5306. Capital of foreign and alien stock companies.
13 Foreign and alien stock life insurance companies, in order to
14 be licensed to do business in this Commonwealth, shall have a
15 paid-up and safely invested capital, if a foreign company, or a
16 deposit in the United States, if an alien company, of not less
17 than the capital required under section 3306 (relating to
18 minimum capital stock and financial requirements) for domestic
19 stock life insurance companies.
20 § 5307. Separate accounts.
21 (a) Requirements.--Any domestic life insurance company may
22 establish one or more separate accounts and may allocate thereto
23 any amounts, including proceeds applied under optional modes of
24 settlement or under dividend options, to provide for life
25 insurance or annuities and benefits incidental thereto, payable
26 in fixed or variable amounts or both, subject to the following:
27 (1) The income, gains and losses, realized or
28 unrealized, from assets allocated to a separate account
29 shall, in accordance with applicable contracts, be credited
30 to or charged against the account, without regard to other
19850H1962B2642 - 674 -
1 income, gains or losses of the company.
2 (2) Except as provided with respect to reserves for
3 guarantee benefits and funds referred to in paragraph (3),
4 amounts allocated to any separate account and accumulations
5 thereon may be invested without regard to any requirements or
6 limitations prescribed by the law of this Commonwealth
7 governing the investments of life insurance companies and the
8 investments in any separate accounts shall not be taken into
9 account in applying the investment limitations otherwise
10 applicable to the investments of the company.
11 (3) Except with the approval of the commissioner and
12 under such conditions as to investments and other matters as
13 he may prescribe, which shall recognize the guaranteed nature
14 of the benefits provided, reserves for benefits guaranteed as
15 to dollar amount and duration and reserves for funds
16 guaranteed as to principal amount or stated rate of interest
17 shall not be maintained in a separate account.
18 (4) Unless otherwise approved by the commissioner,
19 assets allocated to a separate account shall be valued at
20 their market value on the date of valuation or, if there is
21 no readily available market, then as provided under the terms
22 of the contract or the rules or other written agreement
23 applicable to the separate account. Unless otherwise approved
24 by the commissioner, the portion of the assets of the
25 separate account equal to the company's reserve liability
26 with regard to the guaranteed benefits and funds referred to
27 in paragraph (3) shall be valued in accordance with the rules
28 otherwise applicable to the assets of the company.
29 (5) Amounts allocated to a separate account shall be
30 owned by the company, and the company shall not be, nor hold
19850H1962B2642 - 675 -
1 itself out to be, a trustee with respect to these amounts. To
2 the extent so provided under the applicable contracts, that
3 portion of the assets of any such separate account equal to
4 the reserves and other contract liabilities with respect to
5 the account shall not be chargeable with liabilities arising
6 out of any other business conducted by the company.
7 (6) If pursuant to the terms of the applicable contracts
8 amounts allocated to a separate account are to be invested in
9 shares of a specified investment company registered under the
10 Investment Company Act of 1940 (54 Stat. 789, 15 U.S.C. §
11 80a-1 et seq.), which shares are to be held for the exclusive
12 benefit of the applicable contracts, such shares shall, to
13 the extent provided in the applicable contracts, be deemed to
14 be a separate account.
15 (7) A sale, exchange or other transfer of assets shall
16 not be made by a company between any of its separate accounts
17 or between any other investment account and any of its
18 separate accounts unless:
19 (i) in case of a transfer into a separate account,
20 the transfer is made solely to establish the account or
21 to support the operation of the contracts with respect to
22 the separate account to which the transfer is made; and
23 (ii) the transfer, whether into or from a separate
24 account, is made by a transfer of cash or by a transfer
25 of securities having a readily determinable market value
26 if the transfer of securities is approved by the
27 commissioner.
28 The commissioner may approve other transfers among such
29 accounts if the transfers would not be inequitable.
30 (8) To the extent the company deems it necessary to
19850H1962B2642 - 676 -
1 comply with Federal or State law, the company, with respect
2 to any separate account, including any separate account which
3 is a management investment company or a unit investment
4 trust, may provide for persons having an interest therein
5 appropriate voting and other rights and special procedures
6 for the conduct of the business of the account, including
7 special rights and procedures relating to investment policy,
8 investment advisory services, selection of independent public
9 accountants and the selection of a committee, whose members
10 need not be otherwise affiliated with the company, to manage
11 the business of the account.
12 § 5308. Impairment of reserve liability.
13 A stock or mutual life insurance company, after receiving
14 notice from the commissioner that its reserve liability has been
15 impaired and after all other debts and claims against the
16 reserve liability, including 50% of its capital, have been
17 deducted, shall not issue new policies under its authority to do
18 business in this Commonwealth until the commissioner finds that
19 its funds have become equal to its liabilities and it obtains
20 from the commissioner a certificate of authority to resume
21 business. When a domestic life insurance company has been
22 notified to cease doing new business, the commissioner may, if
23 no fraud, gross incompetence or recklessness is shown to exist
24 in the management, permit the officers of the company to
25 continue in charge of its business for one year. The
26 commissioner may renew this permission, if the company is likely
27 to retrieve its affairs, or he may institute proceedings to
28 determine what further shall be done.
29 § 5309. Penalty.
30 Subject to sections 5301(3) (relating to general investment
19850H1962B2642 - 677 -
1 provisions) and 5305(1) and (2) (relating to authorized holdings
2 of real estate), a director, trustee or officer of any domestic
3 stock or mutual life insurance company shall not receive any
4 money or valuable thing for negotiating, procuring, recommending
5 or aiding in any purchase by or sale to the company of any
6 property or any loan from the company, nor be directly or
7 indirectly pecuniarily interested, either as principal, agent or
8 beneficiary, in any such purchase, sale or transaction. Any
9 person violating this section commits a misdemeanor of the third
10 degree.
11 § 5310. Corporations operating under prior statutes.
12 (a) Applicability.--For the purposes of this section the
13 term "the prior statutes" means the following:
14 (1) The act of April 28, 1903 (P.L.329, No.259),
15 relating to incorporation and regulation of corporations for
16 the purpose of transacting certain types of insurance.
17 (2) The act of April 20, 1927 (P.L.317, No.190),
18 relating to reincorporation of beneficial or protective
19 societies for the purpose of transacting certain types of
20 insurance.
21 (3) The act of June 24, 1939 (P.L.686, No.320), relating
22 to reincorporation of beneficial or protective societies as
23 limited life insurance companies for the purpose of
24 transacting certain types of insurance.
25 (4) The act of July 15, 1957 (P.L.929, No.400), relating
26 to incorporation of limited life insurance companies for the
27 purpose of transacting certain types of insurance.
28 (b) Authorization.--In the case of any company incorporated
29 or reincorporated under the prior statutes:
30 (1) if it is a stock company having capital of not less
19850H1962B2642 - 678 -
1 than $300,000 and a surplus at least equal to 50% of the
2 capital; or
3 (2) if it is a mutual company having insurance in force
4 in an aggregate amount of not less than $1,000,000, or not
5 less than 400 persons and a surplus of not less than
6 $200,000;
7 the company may, notwithstanding any limitation to the contrary
8 under any statute or under its charter, transact any insurance
9 described in section 3302(a)(1) (relating to authorized classes
10 of insurance).
11 (c) Issuance of stock.--The capital stock of every stock
12 company incorporated or reincorporated under the prior statutes
13 or of every company incorporated or reincorporated under any
14 statute enacted after July 15, 1957, authorizing existing
15 incorporated beneficial or protective societies to reincorporate
16 or new companies to incorporate under the provisions thereof as
17 limited life insurance companies having in the case of a stock
18 company capital stock divided into shares with a par value not
19 less than the amounts stated in those statutes, respectively,
20 shall be divided into shares with a par value of not less than
21 $1 per share, any provision in any of those statutes to the
22 contrary notwithstanding. The charter or articles of agreement
23 of the corporation shall be amended to authorize stock having
24 such par value in the manner provided by section 3552 (relating
25 to amendment of charter).
26 § 5311. Dividends.
27 A stock life insurance company shall not make any dividend on
28 its capital except from the profits arising from its business.
29 In estimating such profits, there shall be first charged as a
30 liability all of the following:
19850H1962B2642 - 679 -
1 (1) The capital stock of the company.
2 (2) The amount of paid-in surplus required under the
3 provisions of section 3306(a) (relating to minimum capital
4 stock and financial requirements).
5 (3) All unpaid losses or other claims.
6 (4) All liabilities for reserves as required by law.
7 (5) All sums due the company on bonds and mortgages,
8 stocks and book accounts, of which none of the principal or
9 interest thereon has been paid during the last calendar year,
10 and for which the foreclosure or other collection proceedings
11 have not been commenced, or which, after judgment obtained
12 thereon, have remained more than two years unsatisfied, and
13 on which interest has not been paid.
14 (6) All interest due or accrued and remaining unpaid.
15 (7) All other debts or obligations of the company.
16 § 5312. Compensation.
17 A domestic stock or mutual life insurance company shall not
18 make any agreement with any officer, director, trustee or
19 salaried employee in which the company agrees that the
20 compensation or emolument will extend for a period beyond 12
21 months from the date of the agreement. However, this payment
22 may, by written contract, be deferred beyond the period of 12
23 months, and the contract may include conditions to be met by
24 such officer or employee before payment will be made. A director
25 or trustee shall not receive any compensation or emolument,
26 other than a fee for attendance at committee or board meetings
27 and for expenses legitimately incurred for travel and
28 maintenance to attend the meetings. Any compensation or
29 emolument which is to be paid to any of the five highest paid
30 officers or employees and any compensation or emolument which is
19850H1962B2642 - 680 -
1 to exceed $35,000 in any one year shall be first authorized by a
2 vote of the board of directors, except commissions accruing on
3 contracts of agents or agreements between the company and agents
4 for the payment of renewal commissions. An officer whose
5 services are paid for at an amount exceeding $1,200 a year shall
6 not receive compensation or emolument from any other source,
7 excepting renewal commissions which may be due him on business
8 obtained prior to the time of his election to office.
9 § 5313. Vouchers for payment.
10 A domestic stock or mutual life insurance company shall not
11 make any disbursement of $500 or more unless evidenced by a
12 voucher signed by or on behalf of the person receiving the money
13 and describing the consideration for the payment. If the
14 expenditure is for both services and disbursements, the voucher
15 shall set forth the services rendered and an itemized statement
16 of the disbursements made. If the expenditure is in connection
17 with any matter pending before any government unit of this
18 Commonwealth or any state, the voucher shall also describe the
19 nature of the matter and of the interest of the company therein.
20 When a voucher cannot be obtained, the expenditure shall be
21 evidenced by an affidavit describing the character and object of
22 the expenditure and stating the reason for not obtaining the
23 voucher.
24 SUBCHAPTER B
25 CONDUCT OF BUSINESS
26 Sec.
27 5321. Uniform policy provisions.
28 5322. Standard nonforfeiture law for life insurance.
29 5323. Annuity and endowment contracts.
30 5324. Standard nonforfeiture law for individual deferred
19850H1962B2642 - 681 -
1 annuities.
2 5325. Notice of right to examine policies.
3 5326. Policy loan interest rates.
4 5327. Prohibited policy provisions.
5 5328. Medical examinations.
6 5329. Insurance on the life of another person.
7 5330. Statements by prospective insured.
8 5331. Insurance proceeds.
9 5332. Variable benefits contracts.
10 5333. Certain life, health and accident companies.
11 5334. Exchange, alteration and conversion of policies.
12 5335. Penalty for misrepresentation.
13 § 5321. Uniform policy provisions.
14 (a) Specific provisions.--A policy of life or endowment
15 insurance, except policies of industrial insurance where the
16 premiums are payable monthly or more often, shall not be
17 delivered in this Commonwealth unless it contains, in substance,
18 the following provisions or provisions which, in the opinion of
19 the commissioner, are more favorable to the policyholder:
20 (1) A provision that all premiums shall be payable in
21 advance.
22 (2) A provision that the insured is entitled to a grace
23 period, either of 30 days or one month, within which the
24 payment of any premium after the first year may be made,
25 subject, at the option of the company, to an interest charge
26 not in excess of 8% per year for the grace period elapsing
27 before the payment of the premium. During this grace period
28 the policy shall continue in full force; but if the policy
29 becomes a claim during the grace period, before the overdue
30 premium or the deferred premiums of the current policy year
19850H1962B2642 - 682 -
1 are paid, the amount of the premiums, with interest on any
2 overdue premiums, may be deducted in any settlement under the
3 policy.
4 (3) A provision that the policy shall be incontestable
5 after it has been in force, during the lifetime of the
6 insured, two years from its date of issue, except for
7 nonpayment of premiums, and that, at the option of the
8 company, provisions relating to disability benefits and those
9 granting additional insurance specifically against death by
10 accident or accidental means, may also be excepted. A clause
11 in any policy of life insurance providing that the policy
12 shall be incontestable after a specified period shall
13 preclude only a contest of the validity of the policy and
14 shall not preclude the assertion, at any time, of defenses
15 based upon provisions in the policy which exclude or restrict
16 coverage, whether or not such restrictions or exclusions are
17 excepted in that clause.
18 (4) A provision that the policy constitutes the entire
19 contract between the parties. If the company desires to make
20 the application a part of the contract, it may do so, if a
21 copy of the application is endorsed upon or attached to the
22 policy when issued; in this case the policy shall contain a
23 provision that the policy and the application constitute the
24 entire contract between the parties.
25 (5) A provision that, if the age of the insured or of
26 any other person whose age is considered in determining the
27 premium has been misstated, the amount payable or benefit
28 accruing under the policy shall be that which the premium
29 would have purchased at the correct age.
30 (6) (i) A provision that the policy shall participate
19850H1962B2642 - 683 -
1 in the surplus of the company; that, beginning not later
2 than the end of the third policy year, the company shall
3 annually determine the portion of the divisible surplus
4 accruing on the policy; and that the party entitled to
5 elect this option may have the dividend arising from such
6 participation paid in cash or applied in accordance with
7 any one of such other dividend options as may be provided
8 by the policy. If any such other dividend options are
9 provided, the policy shall further state which option
10 shall be automatically effective, if the party has not
11 elected some other option.
12 (ii) In lieu of the provision set forth in
13 subparagraph (i), the policy may contain a provision that
14 the policy shall participate in the surplus of the
15 company; that, beginning not later than the end of the
16 fifth policy year, the company shall determine the
17 portion of the divisible surplus accruing on the policy;
18 that the party entitled thereto may have the current
19 dividend arising from such participation paid in cash;
20 and that, at periods of not more than five years
21 thereafter, such apportionment and payment, at the option
22 of that party, shall be made.
23 (iii) A renewable term policy of ten years or less
24 may provide that the surplus accruing to the policy shall
25 be determined and apportioned each year after the second
26 policy year, and accumulated during each renewal period;
27 and that at the end of any renewal period, or upon
28 renewal of the policy by the insured, the company shall
29 apply the accumulated surplus as an annuity for the next
30 succeeding renewal term in the reduction of premiums.
19850H1962B2642 - 684 -
1 (7) A provision specifying the options, if any, to which
2 the policyholder is entitled in the event of default in a
3 premium payment.
4 (8) Except for term insurance, a provision for a loan
5 value at any time after the premiums have been paid for three
6 full years and while no premium is in default beyond the
7 grace period of payment.
8 (i) In the case of any policy issued prior to the
9 operative date of the former section 410A (relating to
10 the standard nonforfeiture law for life insurance) of the
11 act of May 17, 1921 (P.L.682, No.284), known as The
12 Insurance Company Law of 1921, it shall be provided that
13 the company will advance, on proper assignment or pledge
14 of the policy, and on the sole security thereof, at a
15 specified rate of interest, a sum equal to, or at the
16 option of the owner of the policy, less than, the reserve
17 at the end of the current policy year on the policy, and
18 on any dividend additions thereto. A deduction shall be
19 made from the loan value of an amount in accordance with
20 one of the following alternative policy provisions:
21 (A) Not more than 2.5% of the amount insured by
22 the policy and any dividend additions thereto.
23 (B) One-fifth of the entire reserve on the
24 policy.
25 (C) 2.5% of the amount insured by the policy and
26 any dividend additions thereto, or one-fifth of the
27 entire reserve of the policy, at the option of the
28 company.
29 It shall further be provided that the company will deduct
30 from the loan value any existing indebtedness on the
19850H1962B2642 - 685 -
1 policy, and any unpaid balance of the premium for the
2 current policy year, and may collect interest in advance
3 on the loan to the end of the current policy year. The
4 policy may further provide that the loan may be deferred
5 for not more than six months after the application
6 therefor is made.
7 (ii) In the case of any policy issued on or after
8 the operative date of the former section 410A of The
9 Insurance Company Law of 1921, the loan provision shall
10 provide that the company will advance, on proper
11 assignment or pledge of the policy, and on the sole
12 security thereof, at a specified rate of interest not
13 exceeding 8% per year for policies issued prior to April
14 8, 1982, a sum equal to, or, at the option of the party
15 entitled thereto, less than, the cash surrender value at
16 the end of the current policy year as required by section
17 5322 (relating to standard nonforfeiture law for life
18 insurance), and that the company may deduct from such
19 loan value, in addition to any indebtedness deducted in
20 determining such value, any unpaid balance of the premium
21 for the current policy year, and may collect interest in
22 advance on the loan to the end of the current policy
23 year. The company shall reserve the right to defer the
24 loan, except any made to pay premiums to the company, for
25 six months after application for the loan is made.
26 (9) A provision for a nonforfeiture and cash surrender
27 value.
28 (i) In the case of any policy issued prior to the
29 operative date of the former section 410A of The
30 Insurance Company Law of 1921, a nonforfeiture benefit
19850H1962B2642 - 686 -
1 shall be provided in event of default in premium payments
2 after premiums have been paid for three years, which
3 shall secure to the owner of the policy a stipulated form
4 of insurance. The net value of this benefit shall be at
5 least equal to the reserve at the date of default on the
6 policy and on any dividend additions thereto, specifying
7 the mortality table and rate of interest adopted for
8 computing the reserves, less a sum not more than 2.5% of
9 the amount insured by the policy and of any existing
10 dividend additions thereto, and less any existing
11 indebtedness to the company on the policy. This provision
12 shall stipulate that the policy may be surrendered to the
13 company at its home office within one month from date of
14 default for a specified cash value at least equal to the
15 sum which would otherwise be available for the purchase
16 of insurance. The provision may stipulate that the
17 company may defer payment for not more than six months
18 after the application therefor is made. This provision
19 shall not be required in term insurance of 20 years or
20 less.
21 (ii) In the case of any policy issued on or after
22 the operative date of the former section 410A of The
23 Insurance Company Law of 1921, a nonforfeiture benefit
24 and cash surrender value shall be provided in accordance
25 with section 5322.
26 (10) A table showing in figures the loan value and the
27 options, if any, available under the policy each year, upon
28 default in premium payments, during at least the first 20
29 years of the policy. If the proceeds of the policy are
30 payable in installments which are determinable prior to
19850H1962B2642 - 687 -
1 maturity of the policy, the policy shall include a table
2 showing the amount of the guaranteed installments.
3 (11) A provision that the holder of a policy may have
4 the policy reinstated, upon written application, at any time
5 within three years from the date of default in premium
6 payments, unless the policy has been duly surrendered or the
7 extension period expired, upon the production of evidence of
8 insurability satisfactory to the company, and the payment of
9 all overdue premiums with interest at a rate to be specified
10 in the policy but not exceeding 8% per year, and the payment
11 of any other indebtedness to the company upon the policy with
12 interest determined under section 5326 (relating to policy
13 loan interest rates), compounded annually.
14 (12) A provision that when a policy becomes a claim by
15 the death of the insured settlement shall be made upon
16 receipt of due proof of death.
17 (b) Exceptions.--Any of the provisions set forth in
18 subsection (a), or parts thereof, which are inapplicable to
19 single premium or nonparticipating policies, shall to that
20 extent not be incorporated therein. The policies of an alien or
21 foreign insurance company may contain, when delivered in this
22 Commonwealth, any provision prescribed by the law of the state
23 or government under which the company is organized. The policies
24 of a domestic life insurance company may, when delivered in any
25 other state or a foreign country, contain any provision required
26 by the laws of that state or foreign country to be contained in
27 policies delivered therein.
28 § 5322. Standard nonforfeiture law for life insurance.
29 (a) Short title of section.--This section shall be known and
30 may be cited as the Standard Nonforfeiture Law for Life
19850H1962B2642 - 688 -
1 Insurance.
2 (b) General rule.--In the case of policies issued on or
3 after the operative date of the former section 410A (relating to
4 standard nonforfeiture law for life insurance) of the act of May
5 17, 1921 (P.L.682, No.284), known as The Insurance Company Law
6 of 1921, and except as stated in subsection (k) or where this
7 section is not applicable because of the plan of insurance, a
8 life insurance policy shall not be delivered or issued for
9 delivery in this Commonwealth unless it contains in substance
10 the following provisions, or corresponding provisions which the
11 commissioner determines are at least as favorable to the
12 defaulting or surrendering policyholder as the requirements
13 specified in this subsection and are essentially in compliance
14 with subsection (i):
15 (1) That, in the event of default in any premium
16 payment, the company will grant, upon proper request not
17 later than 60 days after the due date of the premium in
18 default, a paid-up nonforfeiture benefit on a plan stipulated
19 in the policy, effective as of the due date, of an amount as
20 provided in this section. In lieu of such a benefit, the
21 company may substitute, upon proper request not later than 60
22 days after the due date of the premium in default, an
23 actuarially equivalent alternative paid-up nonforfeiture
24 benefit which provides a greater amount or longer period of
25 death benefits or, if applicable, a greater amount or earlier
26 payment of endowment benefits.
27 (2) That, upon surrender of the policy within 60 days
28 after the due date of any premium payment in default after
29 premiums have been paid for at least three full years in the
30 case of ordinary insurance or five full years in the case of
19850H1962B2642 - 689 -
1 industrial insurance, the company will pay, in lieu of any
2 paid-up nonforfeiture benefit, a cash surrender value of any
3 amount as provided in this section.
4 (3) That a specified paid-up nonforfeiture benefit shall
5 become effective as specified in the policy unless the person
6 entitled to make such election elects another available
7 option not later than 60 days after the due date of the
8 premium in default.
9 (4) That, if the policy becomes paid-up by completion of
10 all premium payments or if it is continued under any paid-up
11 nonforfeiture benefit which became effective on or after the
12 third policy anniversary in the case of ordinary insurance or
13 the fifth policy anniversary in the case of industrial
14 insurance, the company will pay, upon surrender of the policy
15 within 30 days after any policy anniversary, a cash surrender
16 value of such amount as provided in this section.
17 (5) In the case of policies which cause on a basis
18 guaranteed in the policy unscheduled changes in benefits or
19 premiums, or which provide an option for changes in benefits
20 or premiums other than a change to a new policy, a statement
21 of the mortality table, interest rate and method used in
22 calculating cash surrender values and the paid-up
23 nonforfeiture benefits available under the policy. In the
24 case of all other policies, a statement of the mortality
25 table and interest rate used in calculating the cash
26 surrender values and the paid-up nonforfeiture benefits
27 available under the policy, together with a table showing any
28 cash surrender value and paid-up nonforfeiture benefit
29 available under the policy on each policy anniversary either
30 during the first 20 policy years or during the term of the
19850H1962B2642 - 690 -
1 policy, whichever is shorter. These values and benefits shall
2 be calculated upon the assumption that there are no dividends
3 or paid-up additions credited to the policy and that there is
4 no indebtedness to the company on the policy.
5 (6) That the cash surrender values and the paid-up
6 nonforfeiture benefits available under the policy are not
7 less than the minimum values and benefits required under any
8 statute of the state in which the policy is delivered; an
9 explanation of the manner in which the cash surrender values
10 and the paid-up nonforfeiture benefits are altered by the
11 existence of any paid-up additions credited to the policy or
12 any indebtedness to the company on the policy; if a detailed
13 statement of the method of computation of the values and
14 benefits shown in the policy is not stated therein, a
15 statement that the method of computation has been filed with
16 the insurance supervisory official of the state in which the
17 policy is delivered; and a statement of the method to be used
18 in calculating the cash surrender value and paid-up
19 nonforfeiture benefit available under the policy on any
20 policy anniversary beyond the last anniversary for which such
21 values and benefits are consecutively shown in the policy.
22 (7) That the company shall reserve the right to defer
23 the payment of any cash surrender value for a period of six
24 months after demand therefor with surrender of the policy.
25 (c) Calculation of cash surrender values.--
26 (1) Any cash surrender value available under the policy
27 in the event of default in a premium payment due on any
28 policy anniversary, whether or not required by subsection
29 (b), shall be an amount not less than the excess of the
30 present value, on that anniversary, of the future guaranteed
19850H1962B2642 - 691 -
1 benefits which would have been provided for by the policy,
2 including any existing paid-up additions, if there had been
3 no default, over the sum of:
4 (i) the then present value of the adjusted premiums,
5 as defined in subsections (e) and (f), corresponding to
6 premiums which would have fallen due on and after the
7 anniversary; and
8 (ii) the amount of any indebtedness to the company
9 on the policy.
10 (2) For any policy issued on or after the operative date
11 of subsection (f) which provides supplemental life insurance
12 or annuity benefits at the option of the insured and for an
13 identifiable additional premium by rider or supplemental
14 policy provision, the cash surrender value shall be an amount
15 not less than the sum of:
16 (i) the cash surrender value under paragraph (1) for
17 an otherwise similar policy issued at the same age
18 without the rider or supplemental policy provision; and
19 (ii) the cash surrender value under paragraph (1)
20 for a policy which provides only the benefits otherwise
21 provided by the rider or supplemental policy provision.
22 (3) For any family policy issued on or after the
23 operative date of subsection (f) which defines a primary
24 insured and provides term insurance on the life of the spouse
25 of the primary insured expiring before the spouse reaches 71
26 years of age, the cash surrender value shall be an amount not
27 less than the sum of:
28 (i) the cash surrender value under paragraph (1) for
29 an otherwise similar policy issued at the same age
30 without term insurance on the life of the spouse; and
19850H1962B2642 - 692 -
1 (ii) the cash surrender value under paragraph (1)
2 for a policy which provides only the benefits otherwise
3 provided by the term insurance on the life of the spouse.
4 (4) Any cash surrender value available within 30 days
5 after any policy anniversary under any policy paid-up by
6 completion of all premium payments or any policy continued
7 under any paid-up nonforfeiture benefit, whether or not
8 required by subsection (b), shall be an amount not less than
9 the present value on the anniversary of the future guaranteed
10 benefits provided for by the policy, including any existing
11 paid-up additions, decreased by any indebtedness to the
12 company on the policy.
13 (d) Paid-up nonforfeiture benefits.--Any paid-up
14 nonforfeiture benefit available under the policy in the event of
15 default in a premium payment due on any policy anniversary shall
16 be such that its present value as of the anniversary shall be at
17 least equal to the cash surrender value then provided for by the
18 policy or, if none is provided for, the cash surrender value
19 which would have been required by this section in the absence of
20 the condition that premiums shall have been paid for at least a
21 specified period.
22 (e) Determination of related factors.--
23 (1) (i) This paragraph does not apply to policies
24 issued on or after the operative date of subsection (f).
25 Except as provided in subparagraph (iii), the adjusted
26 premiums for any policy shall be calculated on an annual
27 basis and shall be such uniform percentage of the
28 respective premiums specified in the policy for each
29 policy year, excluding any extra premiums charged because
30 of impairments or special hazards, that the present
19850H1962B2642 - 693 -
1 value, at the date of issue of the policy, of all
2 adjusted premiums shall be equal to the sum of:
3 (A) the then present value of the future
4 guaranteed benefits provided for by the policy;
5 (B) two percent of the amount of insurance, if
6 the insurance is uniform in amount, or of the
7 equivalent uniform amount, as defined in subparagraph
8 (ii), if the amount of insurance varies with duration
9 of the policy;
10 (C) forty percent of the adjusted premium for
11 the first policy year; and
12 (D) twenty-five percent of either the adjusted
13 premium for the first policy year or the adjusted
14 premium for a whole life policy of the same uniform
15 or equivalent uniform amount with uniform premiums
16 for the whole of life issued at the same age for the
17 same amount of insurance, whichever is less.
18 In applying the percentages specified in clauses (C) and
19 (D), no adjusted premium shall be deemed to exceed 4% of
20 the amount of insurance or uniform amount equivalent
21 thereto. The date of issue of a policy for the purpose of
22 this subsection shall be the date as of which the rated
23 age of the insured is determined.
24 (ii) In the case of a policy providing an amount of
25 insurance varying with the duration of the policy, the
26 equivalent uniform amount of insurance for the purpose of
27 this subsection shall be the uniform amount of insurance
28 provided by an otherwise similar policy, containing the
29 same endowment benefit issued at the same age and for the
30 same term, the amount of which does not vary with
19850H1962B2642 - 694 -
1 duration and the benefits under which have the same
2 present value at the date of issue as the benefits under
3 the policy. In the case of a policy providing a varying
4 amount of insurance issued on the life of a child under
5 ten years of age, the equivalent uniform amount may be
6 computed as if the amount of insurance provided by the
7 policy prior to the attainment of ten years of age was
8 the amount provided by the policy at ten years of age.
9 (iii) The adjusted premiums for any policy providing
10 term insurance benefits by rider or supplemental policy
11 provision shall be equal to:
12 (A) the adjusted premiums for an otherwise
13 similar policy issued at the same age, without such
14 term insurance benefits increased during the period
15 for which premiums for such term insurance benefits
16 are payable, by;
17 (B) the adjusted premiums for such term
18 insurance.
19 The amounts stated in clauses (A) and (B) shall be
20 calculated separately and as specified in subparagraphs
21 (i) and (ii), except that for the purposes of
22 subparagraph (i)(B), (C) and (D), the amount of insurance
23 or equivalent uniform amount of insurance used in the
24 calculation of the adjusted premiums referred to in this
25 clause shall be equal to the excess of the corresponding
26 amount determined for the entire policy over the amount
27 used in the calculation of the adjusted premiums in
28 clause (A) of this subparagraph.
29 (iv) Except as otherwise provided in paragraphs (2)
30 and (3), all adjusted premiums and present values
19850H1962B2642 - 695 -
1 referred to in this section shall, for all policies of
2 ordinary insurance, be calculated on the basis of the
3 Commissioners 1941 Standard Ordinary Mortality Table. For
4 any category of ordinary insurance issued on female
5 risks, adjusted premiums and present values may be
6 calculated according to an age not more than three years
7 younger than the actual age of the insured. Such
8 calculations for all policies of industrial insurance
9 shall be made on the basis of the 1941 Standard
10 Industrial Mortality Table. All calculations shall be
11 made using the rate of interest not exceeding 3.5% a
12 year, specified in the policy for calculating cash
13 surrender values and paid-up nonforfeiture benefits. In
14 calculating the present value of any paid-up term
15 insurance with any accompanying pure endowment offered as
16 a nonforfeiture benefit, the rates of mortality assumed
17 may be not more than 130% of the rates of mortality
18 according to the applicable table. For insurance issued
19 on a substandard basis, the calculation of any adjusted
20 premiums and present values may be based on such other
21 table of mortality as may be specified by the company and
22 approved by the commissioner.
23 (2) This paragraph does not apply to ordinary policies
24 issued on or after the operative date of subsection (f). In
25 the case of ordinary policies issued on or after the
26 operative date of the former section 410A(d)(2) of The
27 Insurance Company Law of 1921, all adjusted premiums and
28 present values referred to in this section shall be
29 calculated on the basis of the Commissioners 1958 Standard
30 Ordinary Mortality Table and the rate of interest specified
19850H1962B2642 - 696 -
1 in the policy for calculating cash surrender values and paid-
2 up nonforfeiture benefits. This rate of interest shall not
3 exceed 3.5% a year except that a rate of interest not
4 exceeding 4% a year may be used for policies issued on or
5 after June 23, 1976, and prior to July 3, 1980. A rate of
6 interest not exceeding 5.5% a year or such higher rate of
7 interest as may be approved by the commissioner may be used
8 for policies issued on or after July 3, 1980. For any
9 category of ordinary insurance issued on female risks,
10 adjusted premiums and present values may be calculated
11 according to an age not more than six years younger than the
12 actual age of the insured. In calculating the present value
13 of any paid-up term insurance with any accompanying pure
14 endowment offered as a nonforfeiture benefit, the rates of
15 mortality assumed may be not more than those shown in the
16 Commissioners 1958 Extended Term Insurance Table. For
17 insurance issued on a substandard basis, the calculation of
18 any such adjusted premiums and present values may be based on
19 such other table of mortality as specified by the company and
20 approved by the commissioner.
21 (3) This paragraph does not apply to industrial policies
22 issued on or after the operative date of subsection (f). In
23 the case of industrial policies issued on or after the
24 operative date of the former section 410A(d)(3) of The
25 Insurance Company Law of 1921, all adjusted premiums and
26 present values referred to in this section shall be
27 calculated on the basis of the Commissioners 1961 Standard
28 Industrial Mortality Table and the rate of interest specified
29 in the policy for calculating cash surrender values and paid-
30 up nonforfeiture benefits. This rate of interest shall not
19850H1962B2642 - 697 -
1 exceed 3.5% a year except that a rate of interest not
2 exceeding 4% a year may be used for policies issued on or
3 after June 23, 1976, and prior to July 3, 1980. A rate of
4 interest not exceeding 5.5% a year or such higher rate of
5 interest as may be approved by the commissioner may be used
6 for policies issued on or after July 3, 1980. In calculating
7 the present value of any paid-up term insurance with
8 accompanying pure endowment, if any, offered as a
9 nonforfeiture benefit, the rates of mortality assumed may be
10 not more than those shown in the Commissioners 1961
11 Industrial Extended Term Insurance Table. For insurance
12 issued on a substandard basis, the calculation of any such
13 adjusted premiums and present values may be based on such
14 other table of mortality as specified by the company and
15 approved by the commissioner.
16 (f) Alternative determination of related factors.--
17 (1) This subsection applies to all policies issued on or
18 after the operative date of this subsection as defined in
19 paragraph (11). Except as provided in subsection (c)(2) and
20 in paragraph (7) of this subsection, the adjusted premiums
21 for any policy shall be calculated on an annual basis. The
22 adjusted premiums shall be such uniform percentage of the
23 respective premiums specified in the policy for each policy
24 year, excluding any extra premiums charged because of
25 impairments or special hazards and also excluding any uniform
26 annual contract charge or policy fee specified in the policy
27 in a statement of the method to be used in calculating the
28 cash surrender values and paid-up nonforfeiture benefits,
29 that the present value, at the date of issue of the policy,
30 of all adjusted premiums shall be equal to the sum of:
19850H1962B2642 - 698 -
1 (i) the then present value of the future guaranteed
2 benefits provided for by the policy;
3 (ii) one percent of either the amount of insurance,
4 if the insurance be uniform in amount, or the average
5 amount of insurance at the beginning of each of the first
6 ten policy years; and
7 (iii) one hundred twenty-five percent of the
8 nonforfeiture net level premium as defined in paragraph
9 (2).
10 However, in applying the percentage specified in subparagraph
11 (iii) no nonforfeiture net level premium shall be deemed to
12 exceed 4% of either the amount of insurance, if the insurance
13 is uniform in amount, or the average amount of insurance at
14 the beginning of each of the first ten policy years. The date
15 of issue of a policy for the purpose of this subsection shall
16 be the date as of which the rated age of the insured is
17 determined.
18 (2) The nonforfeiture net level premium shall be equal
19 to the present value, at the date of issue of the policy, of
20 the guaranteed benefits provided for by the policy divided by
21 the present value, at the date of issue of the policy, of an
22 annuity of one per year payable on the date of issue of the
23 policy and on each anniversary of the policy on which a
24 premium falls due.
25 (3) In the case of policies which cause on a basis
26 guaranteed in the policy unscheduled changes in benefits or
27 premiums, or which provide an option for changes in benefits
28 or premiums other than a change to a new policy, the adjusted
29 premiums and present values shall initially be calculated on
30 the assumption that future benefits and premiums do not
19850H1962B2642 - 699 -
1 change from those stipulated at the date of issue of the
2 policy. At the time of any such change in the benefits or
3 premiums the future adjusted premiums, nonforfeiture net
4 level premiums and present values shall be recalculated on
5 the assumption that future benefits and premiums do not
6 change from those stipulated by the policy immediately after
7 the change.
8 (4) Except as otherwise provided in paragraph (7), the
9 recalculated future adjusted premiums for the policy shall be
10 such uniform percentage of the respective future premiums
11 specified in the policy for each policy year, excluding
12 amounts payable as extra premiums to cover impairments and
13 special hazards and also excluding any uniform annual
14 contract charge or policy fee specified in the policy in a
15 statement of the method to be used in calculating the cash
16 surrender values and paid-up nonforfeiture benefits, that the
17 present value, at the time of change to the newly defined
18 benefits or premiums, of all such future adjusted premiums
19 shall be equal to the excess of:
20 (i) the sum of the then present value of the then
21 future guaranteed benefits provided for by the policy and
22 the additional expense allowance;
23 (ii) the then cash surrender value, if any, or
24 present value of any paid-up nonforfeiture benefit under
25 the policy.
26 (5) The additional expense allowance, at the time of the
27 change to the newly defined benefits or premiums, shall be
28 the sum of:
29 (i) one percent of the excess, if positive, of the
30 average amount of insurance at the beginning of each of
19850H1962B2642 - 700 -
1 the first ten policy years subsequent to the change over
2 the average amount of insurance prior to the change at
3 the beginning of each of the first ten policy years
4 subsequent to the time of the most recent previous change
5 or, if there has been no previous change, the date of
6 issue of the policy; and
7 (ii) one hundred twenty-five percent of the
8 increase, if positive, in the nonforfeiture net level
9 premium.
10 (6) The recalculated nonforfeiture net level premium
11 shall be equal to the sum of:
12 (i) the nonforfeiture net level premium applicable
13 prior to the change times the present value of an annuity
14 of one per annum payable on each anniversary of the
15 policy on or subsequent to the date of the change on
16 which a premium would have fallen due had the change not
17 occurred; and
18 (ii) the present value of the increase in future
19 guaranteed benefits provided for by the policy;
20 divided by the present value of an annuity of one a year
21 payable on each anniversary of the policy on or subsequent to
22 the date of change on which a premium falls due.
23 (7) Notwithstanding any other provisions of this
24 subsection, in the case of a policy issued on a substandard
25 basis which provides reduced graded amounts of insurance so
26 that, in each policy year, the policy has the same tabular
27 mortality cost as an otherwise similar policy issued on the
28 standard basis which provides higher uniform amounts of
29 insurance, adjusted premiums and present values for the
30 policy may be calculated as if it were issued to provide such
19850H1962B2642 - 701 -
1 higher uniform amounts of insurance on the standard basis.
2 (8) The adjusted premiums and present values referred to
3 in this subsection shall for all policies of ordinary
4 insurance be calculated on the basis of the Commissioners
5 1980 Standard Ordinary Mortality Table or, at the election of
6 the company for any one or more specified plans of life
7 insurance, the Commissioners 1980 Standard Ordinary Mortality
8 Table with Ten-Year Select Mortality Factors. These adjusted
9 premiums and present values for policies of industrial
10 insurance shall be calculated on the basis of the
11 Commissioners 1961 Standard Industrial Mortality Table, and
12 for policies issued in a particular calendar year shall be
13 calculated on the basis of a rate of interest not exceeding
14 the nonforfeiture interest rate under this subsection for
15 policies issued in that calendar year. These provisions are
16 subject to the following:
17 (i) At the option of the company, calculations for
18 all policies issued in a particular calendar year may be
19 made on the basis of a rate of interest not exceeding the
20 nonforfeiture interest rate under this subsection for
21 policies issued in the immediately preceding calendar
22 year.
23 (ii) Under any paid-up nonforfeiture benefit,
24 including any paid-up dividend additions, any cash
25 surrender value available, whether or not required by
26 subsection (b), shall be calculated on the basis of the
27 mortality table and rate of interest used in determining
28 the amount of the paid-up nonforfeiture benefit and any
29 paid-up dividend additions.
30 (iii) A company may calculate the amount of any
19850H1962B2642 - 702 -
1 guaranteed paid-up nonforfeiture benefit including any
2 paid-up additions under the policy on the basis of an
3 interest rate no lower than that specified in the policy
4 for calculating cash surrender values.
5 (iv) In calculating the present value of any paid-up
6 term insurance with any accompanying pure endowment
7 offered as a nonforfeiture benefit, the rates of
8 mortality assumed may be not more than those in the
9 Commissioners 1980 Extended Term Insurance Table for
10 policies of ordinary insurance or in the Commissioners
11 1961 Industrial Extended Term Insurance Table for
12 policies of industrial insurance.
13 (v) For insurance issued on a substandard basis, the
14 calculation of adjusted premiums and present values may
15 be based on appropriate modifications of the tables
16 mentioned in subparagraph (iv).
17 (vi) Any ordinary mortality tables adopted after
18 1980 by the National Association of Insurance
19 Commissioners, if approved by regulation promulgated by
20 the commissioner for use in determining the minimum
21 nonforfeiture standard, may be substituted for the
22 Commissioners 1980 Standard Ordinary Mortality Table with
23 or without Ten-Year Select Mortality Factors or for the
24 Commissioners 1980 Extended Term Insurance Table.
25 (vii) Any industrial mortality tables adopted after
26 1980 by the National Association of Insurance
27 Commissioners, if approved by regulation promulgated by
28 the commissioner for use in determining the minimum
29 nonforfeiture standard, may be substituted for the
30 Commissioners 1961 Standard Industrial Mortality Table or
19850H1962B2642 - 703 -
1 the Commissioners 1961 Industrial Extended Term Insurance
2 Table.
3 (9) The nonforfeiture interest rate per year for any
4 policy issued in a particular calendar year shall be equal to
5 125% of the calendar year statutory valuation interest rate
6 for the policy under Subchapter A of Chapter 7 (relating to
7 reserve liability), rounded to the nearest 0.25%.
8 (10) Notwithstanding any other provision in this section
9 to the contrary, any refiling of nonforfeiture values or
10 their methods of computation for any previously approved
11 policy form which involves only a change in the interest rate
12 or mortality table used to compute nonforfeiture values shall
13 not require refiling of any other provisions of that policy
14 form.
15 (11) Any company may file with the commissioner a
16 written notice of its election to comply with the provisions
17 of this subsection after a specified date before January 1,
18 1989, which shall be the operative date of this subsection
19 for the company. If a company makes no such election, the
20 operative date of this subsection for the company shall be
21 January 1, 1989.
22 (g) Special approved methods of determination.--In the case
23 of any plan of life insurance which provides for future premium
24 determination, the amounts of which are to be determined by the
25 insurance company based on then estimates of future experience,
26 or in the case of any plan of life insurance which is of such a
27 nature that minimum values cannot be determined by the methods
28 described in subsections (b), (c), (d), (e) and (f), then:
29 (1) The company shall demonstrate to the commissioner
30 that the benefits provided under the plan are substantially
19850H1962B2642 - 704 -
1 as favorable to policyholders and insureds as the minimum
2 benefits otherwise required by subsections (b), (c), (d), (e)
3 and (f).
4 (2) The company shall demonstrate to the commissioner
5 that the benefits and the pattern of premiums of that plan
6 are not such as to mislead prospective policyholders or
7 insureds.
8 (3) The cash surrender values and paid-up nonforfeiture
9 benefits provided by the plan shall not be less than the
10 minimum values and benefits required for the plan computed by
11 a method consistent with the principles of this section, as
12 determined by regulations promulgated by the commissioner.
13 (h) Default on premiums not due on anniversary date.--Any
14 cash surrender value and any paid-up nonforfeiture benefit,
15 available under the policy in the event of default in a premium
16 payment due at any time other than on the policy anniversary,
17 shall be calculated with allowance for the lapse of time and the
18 payment of fractional premiums beyond the beginning of the
19 policy year in which the default occurs. All values referred to
20 in subsections (c), (d), (e) and (f) may be calculated upon the
21 assumption that any death benefit is payable at the end of the
22 policy year of death.
23 (i) Additional standards.--
24 (1) This subsection applies to all policies issued on or
25 after January 1, 1985. Any cash surrender value available
26 under the policy in the event of default in a premium payment
27 due on any policy anniversary shall be in an amount which
28 does not differ by more than 0.2% of either the amount of
29 insurance, if the insurance be uniform in amount, or the
30 average amount of insurance at the beginning of each of the
19850H1962B2642 - 705 -
1 first ten policy years, from the sum of:
2 (i) the greater of zero and the basic cash value
3 under paragraph (2); and
4 (ii) the present value of any existing paid-up
5 additions less the amount of any indebtedness to the
6 company under the policy.
7 (2) The basic cash value shall be equal to the present
8 value, on the policy anniversary, of the future guaranteed
9 benefits which would have been provided for by the policy,
10 excluding any existing paid-up additions and before deduction
11 of any indebtedness to the company, if there had been no
12 default, less the then present value of the nonforfeiture
13 factors corresponding to premiums which would have fallen due
14 on and after the anniversary. The effect on the basic cash
15 value of supplemental life insurance or annuity benefits or
16 of family coverage, as described in subsection (c) or (e),
17 whichever is applicable, shall be the same as the effect
18 under subsection (c) or (e), whichever is applicable, on the
19 cash surrender value under that subsection.
20 (3) The nonforfeiture factor for each policy year shall
21 be an amount equal to a percentage of the adjusted premium
22 for the policy year, under subsection (e) or (f), whichever
23 is applicable. Except as is required by paragraph (4), this
24 percentage:
25 (i) shall be the same percentage for each policy
26 year between the second policy anniversary and the later
27 of:
28 (A) the fifth policy anniversary; or
29 (B) the first policy anniversary at which there
30 is available under the policy a cash surrender value
19850H1962B2642 - 706 -
1 in an amount, before including any paid-up additions
2 and before deducting any indebtedness, of at least
3 0.2% of either the amount of insurance, if the
4 insurance is uniform in amount, or the average amount
5 of insurance at the beginning of each of the first
6 ten policy years; and
7 (ii) shall be such that no percentage after the
8 later of the policy anniversaries specified in
9 subparagraph (i) may apply to fewer than five consecutive
10 policy years.
11 (4) The basic cash value shall not be less than the
12 value which would be obtained if the adjusted premiums for
13 the policy under subsection (e) or (f), whichever is
14 applicable, were substituted for the nonforfeiture factors in
15 the calculation of the basic cash value.
16 (5) All adjusted premiums and present values referred to
17 in this subsection shall for a particular policy be
18 calculated on the same mortality and interest bases as are
19 used in demonstrating the policy's compliance with this
20 section. The cash surrender values referred to in this
21 subsection shall include any endowment benefits provided for
22 by the policy.
23 (6) Any cash surrender value available other than in the
24 event of default in a premium payment due on a policy
25 anniversary, and the amount of any paid-up nonforfeiture
26 benefit available under the policy in the event of default in
27 a premium payment, shall be determined consistently with the
28 provisions for determining the analogous minimum amounts in
29 subsections (b), (c), (d), (e), (f), (g), (h) and (j). The
30 amounts of any cash surrender values and of any paid-up
19850H1962B2642 - 707 -
1 nonforfeiture benefits granted in connection with additional
2 benefits such as those listed in subsection (j) shall conform
3 with this subsection.
4 (j) Additional benefits.--The net value of any paid-up
5 additions, other than paid-up term additions, shall not be less
6 than the amounts used to provide such additions. Notwithstanding
7 subsection (c), additional benefits payable:
8 (1) in the event of death or dismemberment by accident
9 or accidental means;
10 (2) in the event of total and permanent disability;
11 (3) as reversionary annuity or deferred reversionary
12 annuity benefits;
13 (4) as term insurance benefits provided by a rider or
14 supplemental policy provision to which, if issued as a
15 separate policy, this section would not apply;
16 (5) as term insurance on the life of a child or on the
17 lives of children, provided in a policy on the life of a
18 parent of the child, if such term insurance expires before
19 the child reaches 26 years of age, is uniform in amount after
20 the child reaches one year of are and has not become paid-up
21 by reason of the death of a parent of the child; and
22 (6) as other policy benefits additional to life
23 insurance and endowment benefits;
24 and premiums for all such additional benefits, shall be
25 disregarded in ascertaining cash surrender values and
26 nonforfeiture benefits required by this section. These
27 additional benefits shall not be required to be included in any
28 paid-up nonforfeiture benefits.
29 (k) Exclusions.--This section does not apply to any of the
30 following:
19850H1962B2642 - 708 -
1 (1) Reinsurance.
2 (2) Group insurance.
3 (3) Pure endowment.
4 (4) Annuity or reversionary annuity contracts.
5 (5) Term policies of uniform amount, which provide no
6 guaranteed nonforfeiture or endowment benefits, or renewal
7 thereof, of 20 years or less expiring before the insured
8 reaches 71 years of age, for which uniform premiums are
9 payable during the entire term of the policy.
10 (6) Term policies of decreasing amount, which provide no
11 guaranteed nonforfeiture or endowment benefits, on which each
12 adjusted premium, calculated as specified in subsections (e)
13 and (f), is less than the adjusted premium so calculated on a
14 term policy of uniform amount, or renewal thereof, which
15 provides no guaranteed nonforfeiture or endowment benefits,
16 issued at the same age and for the same initial amount of
17 insurance and for a term of 20 years or less expiring before
18 the insured reaches 71 years of age, for which uniform
19 premiums are payable during the entire term of the policy.
20 (7) Policies providing no guaranteed nonforfeiture or
21 endowment benefits, for which no cash surrender value or
22 present value of any paid-up nonforfeiture benefit, at the
23 beginning of any policy year, calculated as specified in
24 subsections (c), (d), (e) and (f), exceeds 2.5% of the amount
25 of insurance at the beginning of the same policy year.
26 (8) Policies delivered outside this Commonwealth through
27 an agent or other representative of the company issuing the
28 policy. For the purposes of this subsection, the age at the
29 expiration for a joint term life insurance policy shall be
30 the age at the expiration of the oldest life.
19850H1962B2642 - 709 -
1 § 5323. Annuity and endowment contracts.
2 (a) Uniform provisions for annuities and pure endowments.--
3 An annuity or pure endowment contract shall not be delivered in
4 this Commonwealth, except policies of industrial insurance where
5 the premiums are payable monthly or more often, and except in
6 the case of a reversionary annuity, otherwise called a
7 survivorship annuity, or an annuity contracted by an employer on
8 behalf of his employees, unless it contains in substance the
9 following provisions:
10 (1) A provision that there shall be a grace period,
11 either of 30 days or of one month, within which any
12 stipulated payment to the company falling due after the first
13 year may be made, subject, at the option of the company, to
14 an interest charge thereon at a rate to be specified in the
15 contract, but not exceeding 8% a year, for the grace period
16 elapsing before payment, during which grace period the
17 contract shall continue in full force; that if a claim arises
18 under the contract on account of death during the grace
19 period before any overdue payment or deferred payments of the
20 current year are made, the amount of the payments, with
21 interest on any overdue payments, may be deducted from any
22 amount payable under the contract in settlement. If the
23 contract contains a loan provision, the rate of interest for
24 contracts issued prior to April 8, 1982, may not exceed 8% a
25 year.
26 (2) If statements, other than those relating to age and
27 identity, are required as a condition of issuing the
28 contract, a provision that the contract shall be
29 incontestable after it has been in force during the lifetime
30 of the person or each of the persons as to whom such
19850H1962B2642 - 710 -
1 statements are required for a period of two years from its
2 date of issue, except where stipulated payments to the
3 company have not been made, and except for violation of the
4 conditions of the contract relating to military or naval
5 service in time of war. At the option of the company,
6 provisions relative to benefits in the event of total and
7 permanent disability and relative to insurance specifically
8 against death by accident may also be excepted.
9 (3) A provision that the contract constitutes the entire
10 contract between the parties. If the company desires to make
11 the application a part of the contract, it may do so, if a
12 copy of the application is endorsed upon or attached to the
13 contract when issued; in this case, the contract shall
14 contain a provision that the insurance contract and the
15 application constitute the entire contract between the
16 parties.
17 (4) A provision that, if the age of any of the persons
18 upon whose lives the contract is based has been misstated,
19 the amount payable under the contract shall be that which the
20 stipulated payments to the company would have purchased at
21 the correct age. Any overpayment by the company on account of
22 misstatement of age shall, with interest thereon at a rate to
23 be specified in the contract but not exceeding 6% a year, be
24 charged against the current or next succeeding payment to be
25 made by the company under the contract.
26 (5) If the contract is participating, a provision that
27 the divisible surplus shall be apportioned annually, and
28 dividends shall be payable in cash or shall be applicable to
29 any stipulated payment to the company under the contract.
30 (6) A provision specifying the options available upon
19850H1962B2642 - 711 -
1 cessation of payment of consideration under the contract.
2 (i) In the case of contracts issued prior to July 3,
3 1980, the provision shall specify that, if the contract,
4 after having been in force for three full years, shall by
5 its terms lapse or become forfeited because any
6 stipulated payment to the company has not been made, the
7 reserve on the contract, computed according to the
8 standard adopted by the company under Chapter 7 (relating
9 to reserve liability) shall, after deducting 20% of the
10 entire reserve and any indebtedness to the company under
11 the contract, be applied as a net single payment
12 according to that standard for the purchase of a paid-up
13 annuity or pure endowment contract, which may be
14 nonparticipating and which shall be payable by the
15 company under the same terms and conditions, except as to
16 the amount of the original contract. A company may
17 provide, in lieu of the paid-up values, for a paid-up
18 annuity or pure endowment contract in an amount bearing
19 the same proportion to the original annuity or pure
20 endowment contract as the number of stipulated payments
21 made to the company bears to the total number of
22 stipulated payments required to be made to the company
23 under the contract. If there is any indebtedness to the
24 company under the contract, the amount of the paid-up
25 annuity or pure endowment shall be reduced by an amount
26 bearing the same proportion to the paid-up annuity or
27 pure endowment as the indebtedness bears to the reserve
28 on the paid-up annuity or pure endowment, computed
29 according to the standard adopted by the company under
30 Subchapter A of Chapter 7.
19850H1962B2642 - 712 -
1 (ii) In the case of contracts issued on or after
2 July 3, 1980, the provisions shall be in accordance with
3 section 5324 (relating to standard nonforfeiture law for
4 individual deferred annuities).
5 (7) A provision that the contract may be reinstated at
6 any time within one year from the date of default in making
7 stipulated payments to the company, if all overdue stipulated
8 payments are made with interest thereon at a rate to be
9 specified in the contract, but not exceeding 8% a year, and
10 any indebtedness to the company on the contract is paid with
11 interest determined in accordance with section 5326 (relating
12 to policy loan interest rates), compounded annually. If
13 necessary, a company may also include a requirement of
14 evidence of insurability satisfactory to the company.
15 (b) Standard provisions for reversionary annuities.--A
16 contract for a reversionary annuity shall not be so issued or
17 delivered in this Commonwealth unless it contains in substance
18 the following provisions:
19 (1) Provisions described in subsection (a)(1), (2), (3)
20 and (5), except that under the provision described in
21 subsection (a)(1) the company may provide for an equitable
22 reduction of the amount of the annuity payments in
23 settlement, or an overdue or deferred payments in lieu of
24 providing for a deduction of the payments from any amount
25 payable upon a settlement under the contract.
26 (2) A provision that, if the age of any of the persons
27 upon whose lives the contract is based has been misstated,
28 the amount payable under the contract shall be that which the
29 stipulated payments to the company would have purchased at
30 the correct ages.
19850H1962B2642 - 713 -
1 (3) A provision that the contract may be reinstated at
2 any time within three years from the date of default in
3 making stipulated payments to the company upon production of
4 evidence of insurability satisfactory to the company, if all
5 overdue payments are made with interest thereon at a rate to
6 be specified in the contract, but not exceeding 8% a year,
7 and any indebtedness to the company is paid with interest
8 thereon at a rate or rates determined in accordance with
9 section 5326, compounded annually.
10 (c) Alternative provisions.--Provisions of this section
11 which do not apply to nonparticipating contracts or to contracts
12 for which a single stipulated payment to the company is made
13 shall to that extent not be incorporated in the contract. Any
14 such contract may be delivered in this Commonwealth if, in the
15 opinion of the commissioner, it contains provisions, on any one
16 or more of the requirements of this section, more favorable to
17 the holder of the contract than required by this section.
18 (d) Permitted policies.--This section does not prohibit a
19 life insurance corporation, which issues life insurance on a
20 participating basis, from issuing annuities, reversionary
21 annuities or pure endowments on a nonparticipating basis.
22 (e) Construction of contracts.--Any contract, or any
23 application, endorsement or rider form used in connection
24 therewith, issued in violation of this section shall
25 nevertheless be held valid, but shall be construed as provided
26 in this section. When any provision in the contract,
27 application, endorsement or rider is in conflict with this
28 section or with any other provision of this title or the rights,
29 duties and obligations of the company, the holder of the
30 contract and the beneficiary or annuitant thereunder shall be
19850H1962B2642 - 714 -
1 governed by the provisions thereof. This section does not apply
2 to contracts of reinsurance or to contracts for deferred
3 annuities or reversionary annuities included in life insurance
4 policies.
5 § 5324. Standard nonforfeiture law for individual deferred
6 annuities.
7 (a) Short title of section.--This section shall be known and
8 may be cited as the Standard Nonforfeiture Law for Individual
9 Deferred Annuities.
10 (b) Applicability.--This section does not apply to any of
11 the following:
12 (1) Reinsurance.
13 (2) Group annuity purchased under a retirement plan or
14 plan of deferred compensation established or maintained by an
15 employer or an employee organization, or by both, other than
16 a plan providing individual retirement accounts or individual
17 retirement annuities under section 408 of the Internal
18 Revenue Code (Public Law 93-406, 26 U.S.C. § 408).
19 (3) Premium deposit fund.
20 (4) Variable annuity.
21 (5) Investment annuity.
22 (6) Immediate annuity.
23 (7) Deferred annuity contract after annuity payments
24 have commenced.
25 (8) Reversionary annuity.
26 (9) Contracts delivered outside this Commonwealth
27 through an agent or other representative of the company
28 issuing the contract.
29 (c) Required contract provisions.--Except as stated in
30 subsection (b), no annuity contract shall be delivered or issued
19850H1962B2642 - 715 -
1 for delivery in this Commonwealth unless it contains in
2 substance the following provisions, or corresponding provisions
3 which in the opinion of the commissioner are at least as
4 favorable to the contract holder, upon cessation of payment of
5 consideration under the contract:
6 (1) That upon cessation of payment of consideration
7 under a contract, the company will grant a paid-up annuity
8 benefit on a plan stipulated in the contract of the value
9 determined under subsections (e), (f), (g), (h), (i) and (k).
10 (2) If a contract provides for a lump-sum settlement at
11 maturity or at any other time, that upon surrender of the
12 contract at or prior to the commencement of any annuity
13 payments, the company will pay, in lieu of any paid-up
14 annuity benefit, a cash surrender benefit of the amount
15 determined under subsections (e), (f), (i) and (k). The
16 company shall reserve the right to defer the payment of the
17 cash surrender benefit for a period of six months after
18 demand therefor with surrender of the contract.
19 (3) A statement of the mortality table, if any, and
20 interest rates used in calculating any minimum paid-up
21 annuity, cash surrender or death benefits guaranteed under
22 the contract, together with sufficient information to
23 determine the amounts of those benefits.
24 (4) A statement that any paid-up annuity, cash surrender
25 or death benefits available under the contract are not less
26 than the minimum benefits required by any statute of the
27 state in which the contract is delivered and an explanation
28 of the manner in which the benefits are altered by the
29 existence of any additional amounts credited by the company
30 to the contract, any indebtedness to the company on the
19850H1962B2642 - 716 -
1 contract or any prior withdrawals from or partial surrenders
2 of the contract. Notwithstanding this subsection, any
3 deferred annuity contract may provide that if no
4 consideration has been received under a contract for a period
5 of two full years and the portion of the paid-up annuity
6 benefit at maturity on the plan stipulated in the contract
7 arising from consideration paid prior to the period would be
8 less than $20 per month, the company may at its option
9 terminate the contract by payment in cash of the then present
10 value of that portion of the paid-up annuity benefit,
11 calculated on the basis of the mortality table, if any, and
12 interest rate specified in the contract for determining the
13 paid-up annuity benefit; by this payment the company shall be
14 relieved of any further obligation under the contract.
15 (d) Minimum nonforfeiture amount.--The minimum values as
16 specified in subsections (e), (f), (g), (h), (i) and (k) of any
17 paid-up annuity, cash surrender or death benefits available
18 under an annuity contract shall be based upon minimum
19 nonforfeiture amounts determined under this subsection.
20 (1) With respect to contracts providing for flexible
21 consideration, the minimum nonforfeiture amount at any time
22 at or prior to the commencement of any annuity payments shall
23 be equal to an accumulation up to that time at a rate of
24 interest of 3% a year of percentages of the net consideration
25 (as set forth in paragraph (2)), paid prior to that time,
26 plus any existing additional amounts credited to the
27 contract, decreased by the sum of:
28 (i) any prior withdrawals from or partial surrenders
29 of the contract accumulated at a rate of interest of 3% a
30 year; and
19850H1962B2642 - 717 -
1 (ii) any indebtedness to the company on the
2 contract, including interest due and accrued.
3 (2) The net consideration for a given contract year used
4 to define the minimum nonforfeiture amount shall be an amount
5 not less than zero and shall be equal to the corresponding
6 gross consideration credited to the contract during that
7 contract year less an annual contract charge of $30 and less
8 a collection charge of $1.25 a payment credited to the
9 contract during that contract year. The percentages of net
10 considerations shall be 65% of the net consideration for the
11 first contract year and 87.5% of the net consideration for
12 the second and later contract years; however, the percentage
13 shall be 65% of the portion of the total net consideration
14 for any renewal contract year which exceeds by not more than
15 two times the sum of those portions of the net consideration
16 in all prior contract years for which the percentage was 65%.
17 (3) With respect to contracts providing for fixed
18 scheduled payments of consideration, minimum nonforfeiture
19 amounts shall be calculated on the assumption that the
20 payments are made annually in advance and shall be defined as
21 for contracts with flexible consideration which is paid
22 annually with the following exceptions:
23 (i) The portion of the net consideration for the
24 first contract year to be accumulated shall be sum of 65%
25 of the net consideration for the first contract year plus
26 22.5% of the excess of the net consideration for the
27 first contract year over the lesser of the net
28 consideration for the second or third contract years.
29 (ii) The annual contract charge shall be $30 or 10%
30 of the gross annual consideration, whichever is less.
19850H1962B2642 - 718 -
1 (4) With respect to contracts providing for a single
2 payment of consideration, minimum amount shall be defined as
3 for contracts with flexible consideration except that the
4 percentage of net consideration used to determine the minimum
5 nonforfeiture amount shall be equal to 90% and the net
6 consideration shall be the gross consideration less a
7 contract charge of $75.
8 (e) Paid-up annuity benefits.--Any paid-up annuity benefit
9 available under a contract shall be such that its present value
10 on the date the annuity payments are to commence is at least
11 equal to the minimum nonforfeiture amount on that date. The
12 present value shall be computed using the mortality table, if
13 any, and the interest rate specified in the contract for
14 determining the minimum paid-up benefits guaranteed in the
15 contract.
16 (f) Cash surrender benefits.--For contracts which provide
17 cash surrender benefits, cash surrender benefits available prior
18 to maturity shall not be less than the present value as of the
19 date of surrender of that portion of the maturity value of the
20 paid-up annuity benefit which would be provided under the
21 contract at maturity arising from consideration paid prior to
22 the time of cash surrender reduced by the amount appropriate to
23 reflect any prior withdrawals from or partial surrenders of the
24 contract. The present value shall be calculated on the basis of
25 an interest rate not more than 1% higher than the interest rate
26 specified in the contract for accumulating the net consideration
27 to determine maturity value, decreased by the amount of any
28 indebtedness to the company on the contract, including interest
29 due and accrued, and increased by any existing additional
30 amounts credited by the company to the contract. The cash
19850H1962B2642 - 719 -
1 surrender benefit shall not be less than the minimum
2 nonforfeiture amount at that time. The death benefit under such
3 contracts shall be at least equal to the cash surrender benefit.
4 (g) Contracts without cash surrender benefits.--For
5 contracts which do not provide cash surrender benefits, the
6 present value of any paid-up annuity benefit available as a
7 nonforfeiture option at any time prior to maturity shall not be
8 less than the present value of that portion of the maturity
9 value of the paid-up annuity benefit provided under the contract
10 arising from consideration paid prior to the time the contract
11 is surrendered in exchange for, or changed to, a deferred paid-
12 up annuity. Subject to subsection (e), the present value shall
13 be calculated for the period prior to that maturity date on the
14 basis of the interest rate specified in the contract for
15 accumulating the net consideration to determine the maturity
16 value, and increased by any existing additional amount credited
17 by the company to the contract.
18 (h) Contracts limiting death benefits.--For contracts which
19 do not provide any death benefits prior to the commencement of
20 any annuity payments, the present values shall be calculated
21 subject to subsection (e), on the basis of the interest rate and
22 the mortality table specified in the contract for determining
23 the maturity value of the paid-up annuity benefit.
24 (i) Maturity date.--For the purpose of determining the
25 benefits calculated under subsections (f), (g) and (h), in the
26 case of annuity contracts under which an election may be made to
27 have annuity payments commence at optional maturity dates, the
28 maturity date shall be deemed to be the latest date for which
29 election shall be permitted by the contract, but shall not be
30 deemed to be later than the anniversary of the contract next
19850H1962B2642 - 720 -
1 following the 70th birthday of the annuitant or the 10th
2 anniversary of the contract, whichever is later.
3 (j) Disclosure of omitted benefits.--Any contract which does
4 not provide cash surrender benefits or does not provide death
5 benefits at least equal to the minimum nonforfeiture amount
6 prior to the commencement of any annuity payments shall include
7 a statement in a prominent place in the contract that such
8 benefits are not provided.
9 (k) Calculation factors.--Any paid-up annuity, cash
10 surrender or death benefit available at any time, other than on
11 the contract anniversary under any contract with fixed scheduled
12 payments of consideration, shall be calculated with allowance
13 for the lapse of time and the payment of any scheduled
14 consideration beyond the beginning of the contract year in which
15 cessation of payment of consideration under the contract occurs.
16 (l) Contract including life insurance benefits.--For any
17 contract which provides, within the same contract by rider or
18 supplemental contract provision, both annuity benefits and life
19 insurance benefits that are in excess of the greater of cash
20 surrender benefits or a return of the gross considerations with
21 interest, the minimum nonforfeiture benefits shall be equal to
22 the sum of the minimum nonforfeiture benefits for the annuity
23 portion and the minimum nonforfeiture benefits for the life
24 insurance portion computed as if each portion were a separate
25 contract.
26 (m) Additional benefits.--Notwithstanding subsections (e),
27 (f), (g), (h), (i), (j) and (k), additional benefits payable in
28 the event of total and permanent disability, as reversionary
29 annuity or deferred reversionary annuity benefits or as other
30 policy benefits additional to life insurance, endowment and
19850H1962B2642 - 721 -
1 annuity benefits, and consideration for all such additional
2 benefits, shall be disregarded in ascertaining the minimum
3 nonforfeiture amounts, paid-up annuity, cash surrender and death
4 benefits that may be required by this section. The inclusion of
5 these additional benefits shall not be required in any paid-up
6 benefits, unless such additional benefits separately would
7 require minimum nonforfeiture amounts, paid-up annuity, cash
8 surrender and death benefits.
9 § 5325. Notice of right to examine policies.
10 (a) Life and endowment policies.--A policy of individual
11 life insurance or endowment insurance shall not be delivered in
12 this Commonwealth unless it has prominently printed on the first
13 page or attached a notice stating in substance that the
14 policyholder shall be permitted to return the policy within at
15 least ten days of its delivery and to have the premium paid
16 refunded, if after examination of the policy, the policyholder
17 is not satisfied with it for any reason.
18 (b) Annuity or pure endowment contracts.--An individual
19 fixed dollar annuity or pure endowment contract shall not be
20 delivered in this Commonwealth unless it has prominently printed
21 on the first page or attached a notice stating in substance that
22 the policyholder shall be permitted to return the policy within
23 at least ten days of its delivery and to have the stipulated
24 payment or premium paid refunded if, after examination of the
25 contract, the contractholder is not satisfied with it for any
26 reason.
27 (c) Individual variable annuities.--An individual variable
28 annuity contract shall not be entered into in this Commonwealth
29 unless it has prominently printed on the first page or attached
30 a notice stating in substance that the contractholder shall be
19850H1962B2642 - 722 -
1 permitted to return the contract within at least ten days of its
2 delivery if, after examination of the contract, the
3 contractholder is not satisfied with it for any reason and that,
4 if the contract is returned, the insurer will pay to the
5 contractholder an amount equal to the sum of:
6 (1) the difference between the premiums paid including
7 any contract fees or other charges and the amounts, if any,
8 allocated to any separate accounts under the contract; and
9 (2) the cash value of the contract or, if the contract
10 does not have a cash value, the reserve for the contract, on
11 the date of surrender attributable to the amounts so
12 allocated.
13 (d) Returned policies or contracts.--If a policyholder or
14 contractholder returns the contract, pursuant to the notice
15 required under this section, to the insurer at its home or
16 branch office or to the agent through whom it was purchased, it
17 shall be void from the beginning, and the parties shall be in
18 the same position as if no policy or contract had been entered
19 into.
20 § 5326. Policy loan interest rates.
21 (a) Statement of purpose.--The purpose of this section is to
22 permit and set guidelines for companies to include in life
23 insurance policies and annuity contracts containing a loan
24 provision, a provision for periodic adjustment of policy loan
25 interest rates.
26 (b) Definitions.--For the purposes of this section:
27 (1) The rate of interest on policy loans includes the
28 interest rate charged on reinstatement of policy loans for
29 the period during and after any lapse of a policy.
30 (2) The term "policy loan" includes any premium loan
19850H1962B2642 - 723 -
1 made under a policy to pay one or more premiums that were not
2 paid to the company as they fell due.
3 (3) The term "policyholder" includes the owner of the
4 policy or the person designated to pay premiums as shown on
5 the records of the company.
6 (4) The term "policy" includes certificates issued by a
7 fraternal benefit society and annuity contracts which provide
8 for policy loans.
9 (5) The term "published monthly average" means Moody's
10 Corporate Bond Yield Average - Monthly Average Corporates as
11 published by Moody's Investors Service, Inc. or any successor
12 thereto, or if Moody's Corporate Bond Yield Average - Monthly
13 Average Corporates is no longer published, a substantially
14 similar average established by regulation promulgated by the
15 commissioner.
16 (c) Provisions and disclosures.--
17 (1) Policies providing for policy loan interest rates
18 shall have:
19 (i) a provision permitting a maximum interest rate
20 of not more than 8% a year; or
21 (ii) a provision permitting an adjustable maximum
22 interest rate established from time to time by the
23 company as permitted by law.
24 (2) The rate of interest charged on a policy loan made
25 under paragraph (1)(ii) shall not exceed the higher of the
26 following:
27 (i) the published monthly average for the calendar
28 month ending two months before the date on which the rate
29 is determined; or
30 (ii) the rate used to compute the cash surrender
19850H1962B2642 - 724 -
1 values under the policy during the applicable period plus
2 1% a year.
3 (3) If the maximum rate of interest is determined under
4 paragraph (1)(ii), the policy shall contain a provision
5 setting forth the frequency at which the rate is to be
6 determined for that policy.
7 (4) The maximum rate for each policy shall be determined
8 at regular intervals at least once every 12 months, but not
9 more frequently than once in any three-month period. At the
10 intervals specified in the policy:
11 (i) The rate being charged may be increased whenever
12 such increase as determined under paragraph (2) would
13 increase that rate by 0.5% a year or more.
14 (ii) The rate being charged shall be reduced
15 whenever such reduction as determined under paragraph (2)
16 would decrease that rate by 0.5% a year or more.
17 (5) The company shall:
18 (i) Notify the policyholder at the time a cash loan
19 is made of the initial rate of interest on the loan.
20 (ii) Notify the policyholder with respect to premium
21 loans of the initial rate of interest on the loan as soon
22 as it is reasonably practical to do so after making the
23 initial loan. Notice need not be given to the
24 policyholder when a further premium loan is added, except
25 as provided in subparagraph (iii).
26 (iii) Send to policyholders with loans reasonable
27 advance notice of any increase in the rate.
28 (iv) Include in the notices required above the
29 substance of the pertinent provisions of paragraphs (1)
30 and (3).
19850H1962B2642 - 725 -
1 (6) The loan value of the policy shall be determined as
2 provided in section 5321(8) (relating to uniform policy
3 provisions).
4 (7) A policy shall not terminate in a policy year as the
5 sole result of change in the interest rate during that policy
6 year, and the company shall maintain coverage during that
7 policy year until the time at which it would otherwise have
8 terminated if there had been no change during that policy
9 year.
10 (8) The substance of the pertinent provisions of
11 paragraphs (1) and (3) shall be set forth in the policies to
12 which they apply.
13 (9) No other statute applies to policy loan interest
14 rates unless made specifically applicable to such rates.
15 (d) Applicability.--This section does not apply to any
16 insurance contract issued before April 8, 1982, unless the
17 policyholder agrees in writing to its applicability.
18 § 5327. Prohibited policy provisions.
19 A policy of life insurance shall not be delivered in this
20 Commonwealth, except policies of industrial insurance where the
21 premiums are payable monthly or more often, if it contains any
22 of the following provisions:
23 (1) Any provision for forfeiture of the policy for
24 failure to repay any loan on the policy or to pay interest on
25 the loan, while the total indebtedness on the policy is less
26 than the cash value thereof. In ascertaining the indebtedness
27 due upon the policy loan, the interest, if not paid when due,
28 shall be added to the principal of the loan, and shall bear
29 interest at the rate specified in the note or loan agreement.
30 (2) Any provision limiting the time within which any
19850H1962B2642 - 726 -
1 action at law or equity may be commenced to less than two
2 years after the cause of action accrues.
3 (3) Any provision by which the policy purports to be
4 issued or to take effect more than six months before the
5 original application for the insurance was made.
6 (4) Any provision for a mode of settlement at maturity
7 of less value than the amount insured on the face of the
8 policy, plus any dividend additions, less the indebtedness to
9 the company on the policy, and less any premiums that may be
10 deducted by the terms of the policy.
11 § 5328. Medical examinations.
12 In any case where the medical examiner or physician acting as
13 such, or the agent of the insurer recording the answers of the
14 applicant where a medical examination is waived, of any
15 insurance company doing business in this Commonwealth issues a
16 certificate of health, declares the applicant a fit subject for
17 insurance or so reports to the company under its rules and
18 regulations, the company shall thereby be estopped from setting
19 up in defense of an action on the policy or certificate issued
20 to the insured, that the insured was not in the condition of
21 health required by the policy or certificate or by the company
22 issuing the same at the time of the medical examination, or the
23 recording of the answers of the applicant where a medical
24 examination is waived, unless the policy or certificate is
25 procured by means of fraud, deceit or misrepresentation of or on
26 behalf of the insured.
27 § 5329. Insurance on the life of another person.
28 (a) General rule.--Except as provided in this section, a
29 policy of life insurance shall not be delivered in this
30 Commonwealth except upon the application of the person insured.
19850H1962B2642 - 727 -
1 A person liable for the support of a child may take out a policy
2 of insurance on the child. Individuals, partnerships,
3 associations and corporations may insure the lives and health of
4 officers, directors, principals, partners and employees without
5 signing a personal application.
6 (b) Insurable interest.--Any individual may insure his own
7 life for the benefit of any person, but no person shall cause to
8 be insured the life of another, unless the beneficiary named in
9 the life insurance policy or contract, whether himself or a
10 third person, has an insurable interest in the life of the
11 insured. If a policy of life insurance has been issued in
12 conformity with this section, a transfer of the policy or any
13 interest thereunder shall not be invalid by reason of a lack of
14 insurable interest of the transferee in the life of the insured
15 or the payment of premiums thereafter by the transferee. As used
16 in this section the term "insurable interest" means:
17 (1) In the case of persons related by blood or law, an
18 interest engendered by love and affection.
19 (2) In the case of other persons, a lawful economic
20 interest in having the life of the insured continue, as
21 distinguished from an interest which would arise only by the
22 death of the insured.
23 § 5330. Statements by prospective insured.
24 All statements made by the applicant for an annuity or pure
25 endowment contract, or statements made by the insured or on his
26 behalf in the negotiation for a policy or certificate of life,
27 endowment, accident or health insurance, or any reinstatement
28 thereof issued by any insurance entity, fraternal benefit
29 society, beneficial society doing business in this Commonwealth,
30 shall be deemed, in the absence of fraud, to be representations
19850H1962B2642 - 728 -
1 and not warranties.
2 § 5331. Insurance proceeds.
3 (a) Retention by insurer.--Whenever, under the terms of any
4 annuity or policy of life insurance issued by any domestic or
5 foreign stock or mutual life insurance company doing business in
6 this Commonwealth, the proceeds are retained by the company at
7 maturity or otherwise, the company shall not be required to
8 segregate these funds, but may hold the funds as part of its
9 general corporate funds.
10 (b) Limitations on use by insureds.--A person entitled to
11 any part of the proceeds, or any installment of interest due or
12 to become due thereon, shall not be permitted to commute,
13 anticipate, encumber, alienate or assign them in whole or in
14 part, if permission is expressly withheld by the terms of the
15 policy.
16 § 5332. Variable benefits contracts.
17 (a) Disclosure.--Any contract providing benefits payable in
18 variable amounts delivered or issued for delivery in this
19 Commonwealth shall contain a statement of the essential features
20 of the procedures to be followed by the insurance company in
21 determining the amount of such variable benefits. Any such
22 contract under which the benefits vary to reflect investment
23 experience, including a group contract and any certificate in
24 evidence of variable benefits issued under the contract, shall
25 state that the amount will so vary and shall contain on its
26 first page a statement to the effect that the benefits are on a
27 variable basis.
28 (b) Authorization.--A company shall not deliver or issue for
29 delivery in this Commonwealth variable contracts unless it is
30 licensed or organized to do a life insurance business in this
19850H1962B2642 - 729 -
1 Commonwealth, and the commissioner is satisfied that its
2 condition or method of operation, including investment policy,
3 in connection with the issuance of such contracts will not
4 render its operation hazardous to the public or its
5 policyholders in this Commonwealth. In this connection, the
6 commissioner shall consider all relevant circumstances,
7 including the following:
8 (1) The history and financial condition of the company.
9 (2) The character, responsibility and general fitness of
10 the officers and directors or trustees of the company, and
11 whether these individuals command the public confidence and
12 warrant the belief that the business of the company will be
13 lawfully, honestly and efficiently conducted.
14 (3) The law and regulation under which the company is
15 authorized in the state of domicile to issue variable
16 contracts. The state of entry of an alien company shall be
17 deemed its place of domicile for this purpose. If the company
18 is a subsidiary of an admitted life insurance company, or
19 affiliated with such a company through common management or
20 ownership, it may be deemed by the commissioner to have met
21 the requirements of this subsection if either it, the parent
22 or the affiliated company meet such requirements.
23 (c) Regulation by commissioner.--The commissioner shall have
24 sole authority to regulate the issuance and sale of variable
25 contracts, including the approval or disapproval of provisions
26 of the contracts under section 3515 (relating to approval of
27 contracts by commissioner) and the annual statements furnished
28 to contract holders. The commissioner shall promulgate such
29 reasonable regulations as are appropriate to implement this
30 section including regulations to insure that the premiums
19850H1962B2642 - 730 -
1 charged are not excessive, inadequate or unfairly discriminatory
2 and to prevent excessive management, administrative and sales
3 charges. The reserve liability for variable contracts shall be
4 established in accordance with actuarial procedures acceptable
5 to the commissioner that recognize the variable nature of the
6 benefits provided and any mortality guarantees.
7 (d) Limitations on premiums.--The premiums payable by a
8 person who meets standard underwriting requirements for a
9 variable life insurance contract issued in this Commonwealth,
10 exclusive of that portion allocable to any incidental insurance
11 benefit, shall not exceed the following:
12 (1) either 125% of the premiums payable for an
13 equivalent plan of fixed benefit life insurance for the same
14 initial face amount issued by the insurance company or its
15 affiliate; or
16 (2) when an equivalent plan of fixed benefit life
17 insurance for the same initial face amount issued by the
18 insurance company of its affiliate is not available, the
19 maximum premium for that contract shall be fixed under the
20 regulations promulgated by the commissioner.
21 (e) Applicability of other sections.--Except for sections
22 5321(a)(2), (8), (9), (10) and (11) (relating to uniform policy
23 provisions), 5322 (relating to standard nonforfeiture law for
24 life insurance) and 5367(c)(1) (relating to standard policy
25 provisions), in the case of a variable life insurance contract,
26 and section 5323(a)(1), (6) and (7) and (b)(3) (relating to
27 annuity and endowment contracts), in the case of a variable
28 annuity contract, and except as otherwise provided in section
29 5307 (relating to separate accounts) and this section, this
30 title shall apply to separate accounts and contracts relating
19850H1962B2642 - 731 -
1 thereto. Any individual variable life insurance or variable
2 annuity contract delivered or issued for delivery in this
3 Commonwealth shall contain grace, reinstatement and
4 nonforfeiture provisions appropriate to such contract. Any group
5 variable life insurance contract delivered or issued for
6 delivery in this Commonwealth shall contain a grace provision
7 appropriate for such contract. Variable contracts, and agents or
8 other persons who sell variable contracts, shall not be subject
9 to the act of December 5, 1972 (P.L.1280, No.284), known as the
10 Pennsylvania Securities Act of 1972, or to regulation by the
11 Pennsylvania Securities Commission.
12 § 5333. Certain life, health and accident companies.
13 Companies incorporated under the provisions of the former act
14 of April 29, 1874 (P.L.73, No.32), relating to life, health and
15 accident insurance, may write life, health and accident
16 insurance of every kind permitted under this title, in or
17 outside this Commonwealth.
18 § 5334. Exchange, alteration and conversion of policies.
19 (a) General rule.--Any life insurance company may, at the
20 request of a policyholder, exchange, alter or convert any policy
21 of life or endowment insurance, annuity policy contract, or any
22 other policy benefits issued by it, for or into any policy which
23 conforms with the law in force on the date of the original
24 policy, if the rewritten policy is by its terms made effective
25 as of that date, or which conforms with the law in force on a
26 subsequent date, if the rewritten policy is by its terms made
27 effective on the subsequent date.
28 (b) Retroactive change.--If the rewritten policy is made
29 effective as of a date earlier than the date on which the
30 exchange, alteration or conversion occurs:
19850H1962B2642 - 732 -
1 (1) the rewritten policy, if evidence of insurability is
2 required in conjunction with an exchange, alteration or
3 conversion to a policy on a plan requiring a lower premium
4 rate or to a policy to which benefits or features are added
5 differing from those in the original policy, may provide that
6 the date on which the transaction pursuant to this section
7 occurs shall be used in determining the applicability of an
8 incontestability clause in the rewritten policy to the right
9 of the company to contest the transaction, or in determining
10 the applicability of a clause in the rewritten policy
11 limiting liability in the event of suicide of the insured;
12 and
13 (2) the amount of insurance under the rewritten policy
14 shall not exceed the amount of insurance under the original
15 policy, or the amount of insurance which the premium paid for
16 the original policy would have purchased if the rewritten
17 policy had been originally applied for, whichever amount is
18 the greater. Sections 3582 (relating to rebates and
19 inducements) and 5327(3) (relating to prohibited policy
20 provisions) do not prohibit transactions pursuant to this
21 section.
22 § 5335. Penalty for misrepresentation.
23 (a) Criminal penalty.--Any agent of a stock or mutual life
24 insurance company, physician or other person who knowingly
25 makes, directly or indirectly, any misrepresentation or false
26 statement for the purpose of securing, from any stock or mutual
27 life insurance company, a policy of insurance upon his own life
28 or the life of any other person, commits a misdemeanor of the
29 third degree.
30 (b) Civil penalties.--Upon satisfactory evidence of
19850H1962B2642 - 733 -
1 violation of subsection (a) by any agent of any insurance entity
2 or any insurance broker, the commissioner may do any or all of
3 the following:
4 (1) Suspend or revoke the license of the offending agent
5 or broker.
6 (2) Refuse, for a period of not to exceed one year, to
7 issue a new license to the offending agent or broker.
8 (3) Impose a penalty of not more than $1,000 for each
9 violation.
10 SUBCHAPTER C
11 CONVERSION OF STOCK COMPANIES INTO MUTUAL COMPANIES
12 Sec.
13 5341. Power to effect conversion.
14 5342. Approval of plan of conversion.
15 5343. Filing of plan.
16 5344. Rights of dissenters.
17 5345. Completion of conversion.
18 § 5341. Power to effect conversion.
19 Any domestic corporation with capital stock transacting the
20 business of life insurance on the mutual plan of any domestic
21 life insurance corporation having capital stock may acquire its
22 own shares of the capital stock for the benefit of its
23 policyholders and convert the corporation into a mutual life
24 insurance corporation as provided in this subchapter.
25 § 5342. Approval of plan of conversion.
26 (a) General rule.--The corporation may carry out a plan for
27 the acquisition of the shares of its capital stock for the
28 purposes of conversion into a mutual life insurance corporation.
29 The plan shall become effective it if is adopted under the
30 procedure set forth in this section.
19850H1962B2642 - 734 -
1 (b) Approval by directors.--The plan shall be adopted by a
2 majority of the entire number of the directors of the
3 corporation.
4 (c) Approval by commissioner.--The plan shall be submitted
5 for approval to the commissioner.
6 (d) Approval by shareholders.--The plan shall be approved by
7 vote of the stockholders of the corporation, representing a
8 majority in amount of the entire capital stock of the
9 corporation, at a special meeting of stockholders called for the
10 purpose. Notice of the time, place and object of the meeting
11 shall be given to the stockholders by publication, once a week
12 for three successive weeks before the meeting, in at least two
13 daily or weekly newspapers and in the legal periodical
14 designated by the rules of the court for the publication of
15 legal notices, published in the municipality where the
16 corporation has its principal office. At the meeting a vote of
17 the stockholders shall be taken on the plan. The vote shall be
18 conducted by three judges, who shall be stockholders of the
19 corporation, appointed by the board of directors to hold the
20 vote. If any judge is absent, the judges present shall appoint a
21 replacement. The judges shall swear that they will conduct the
22 vote according to law and to the best of their ability. The
23 corporation shall furnish the judges at the meeting with a
24 statement of the amount of its capital stock with the names of
25 the persons holding the stock and the number of shares held by
26 each, which shall be signed and sworn to by one of the chief
27 officers of the corporation. The stockholders may vote in person
28 or by proxy, and all votes shall be cast by ballot. Each share
29 of stock shall entitle its holder to one vote. The judges shall
30 decide upon the qualifications of voters, count the number of
19850H1962B2642 - 735 -
1 shares voted for and against the plan and declare whether the
2 persons holding a majority in amount of capital stock of the
3 corporation have approved or disapproved the plan. The judges
4 shall prepare triplicate returns of the vote, stating the number
5 of shares of stock that voted for and against the plan, and
6 subscribe and deliver the returns to one of the chief officers
7 of the corporation. Each ballot shall have endorsed on it the
8 number of shares represented thereby, but no share or shares
9 transferred within 21 days shall entitle its holder to vote at
10 the meeting.
11 (e) Approval by policyholders.--The plan shall be approved
12 by a majority vote of the policyholders of the corporation whose
13 insurance is in force, voting at a meeting called for the
14 purpose. Notice of the time, place and object of the meeting
15 shall be given to the policyholders by publication, once a week
16 for three successive weeks before the meeting, in at least two
17 daily or weekly newspapers and in the legal periodical
18 designated by the rules of the court for the publication of
19 legal notices, published in the municipality where the
20 corporation has its principal office, and in at least one daily
21 or weekly newspaper published in the capital city of each state
22 in which the corporation does business. At this meeting, a vote
23 of the policyholders shall be taken on the plan. The vote shall
24 be conducted by three judges, who shall be the policyholders of
25 the corporation, appointed by the commissioner to hold the
26 election. If any judge is absent, the judges present shall
27 appoint a replacement. The judges shall swear that they will
28 conduct the vote according to law and to the best of their
29 ability. The corporation shall supply the judges with such
30 books, records and papers of the corporation as they may request
19850H1962B2642 - 736 -
1 in order to assist them in the proper conduct of the meeting.
2 All votes cast shall be cast by ballot. Each policyholder may
3 cast one vote in person or by proxy, but no proxy shall be
4 received or entitle the holder to vote unless it bears the date
5 or has been executed within two months next preceding the vote.
6 The judges shall decide upon the qualifications of voters, count
7 the number of votes case for and against the plan and declare
8 whether a majority of policyholders voting at the meeting have
9 approved or disapproved the plan. The judges shall prepare
10 triplicate returns of the vote, stating the number of
11 policyholders who voted for and against the plan, and subscribe
12 and deliver the returns to one of the chief officers of the
13 corporation.
14 § 5343. Filing of plan.
15 The corporation shall, within 30 days after the plan is
16 adopted and approved under section 5342 (relating to approval of
17 plan of conversion), file with the Secretary of the Commonwealth
18 and with the commissioner:
19 (1) A copy of the plan.
20 (2) A copy of the resolution of the directors adopting
21 the plan.
22 (3) One of the copies of the return of the meeting of
23 the stockholders.
24 (4) One of the copies of the return of the meeting of
25 the policyholders.
26 This filing shall constitute notice to all interested parties of
27 the adoption and approval of the plan.
28 § 5344. Rights of dissenters.
29 (a) Petition for appraisal.--Any stockholder of the
30 corporation who does not consent to the plan may, within 30 days
19850H1962B2642 - 737 -
1 from the filing of the papers under section 5343 (relating to
2 filing of plan), petition the court in the county where the
3 principal office of the corporation is located to appoint an
4 assessor to appraise the shares of stock of the stockholder in
5 the corporation. If the stockholder fails to petition for the
6 appointment of an assessor within the 30-day period, the
7 corporation may do so. Upon the filing of the petition, the
8 court shall direct such notice to be given as the court deems
9 proper to the corporation or the stockholder as respondent. Upon
10 proof of proper notice, and upon hearing all parties in interest
11 appearing in response to the petition, the court shall appoint
12 the assessor.
13 (b) Method of appraisal.--The assessor shall appraise the
14 shares of the stockholder without regard to any appreciation or
15 depreciation in consequence of the plan.
16 (c) Effect of confirmed appraisal.--The appraisal, when
17 confirmed by the court, shall be final and conclusive. The
18 corporation shall at its election either:
19 (1) pay to the stockholder the value of the shares so
20 ascertained, at which time the stockholder shall transfer the
21 shares to the corporation; or
22 (2) deposit the value so ascertained of the shares of
23 the stockholder with the court, at which time the stockholder
24 shall cease to have any interest in the corporation and the
25 shares shall become the property of the corporation.
26 (d) Default.--If the value of the shares is not paid or
27 deposited within 30 days after the appraisal is made and
28 confirmed by the court, the appraisal shall be filed as a
29 judgment against the corporation and may be collected as a
30 judgment.
19850H1962B2642 - 738 -
1 (e) Costs.--The cost of the court proceedings, including a
2 reasonable allowance to the assessor, shall be paid by the
3 corporation pursuant to order of court.
4 § 5345. Completion of conversion.
5 When the corporation has acquired all its shares of the
6 capital stock, the stock shall be canceled by the corporation,
7 and the cancellation shall be certified in duplicate by the
8 secretary of the corporation under the corporate seal. One of
9 the certificates shall be filed with the Secretary of the
10 Commonwealth, and the other shall be filed with the
11 commissioner. When these certificates are filed, all rights of
12 the stockholders of the corporation to vote at any meeting of
13 the corporation or to retain any interest in the corporation or
14 in its property or assets shall cease. The corporation shall
15 then become a mutual life insurance corporation under the new
16 corporate name adopted under the plan. The Secretary of the
17 Commonwealth shall issue the corporation a signed and sealed
18 certificate, granting the corporation the use of the new
19 corporate name. The corporation shall be subject to any
20 provisions of this title applicable to the incorporation and
21 operation of mutual life insurance companies.
22 SUBCHAPTER D
23 MUTUAL LIFE INSURANCE COMPANIES
24 Sec.
25 5351. Foreign and alien companies.
26 5352. Guarantee capital subscriptions.
27 5353. Surplus or safety fund.
28 § 5351. Foreign and alien companies.
29 Foreign mutual life insurance companies may be admitted to do
30 business in this Commonwealth if they have the requisite funds
19850H1962B2642 - 739 -
1 of a mutual life insurance company and, in the opinion of the
2 commissioner, are in sound financial condition and have policies
3 in force upon not less than 500 lives for an aggregate amount of
4 not less than $1,000,000. Any foreign or alien stock or mutual
5 life insurance company licensed to transact business in this
6 Commonwealth on May 17, 1921, having less capital or assets than
7 that required under this title for domestic life insurance
8 companies, may be relicensed so long as, in the opinion of the
9 commissioner, it is in a sound financial condition and otherwise
10 complies with all requirements of law.
11 § 5352. Guarantee capital subscriptions.
12 (a) Assessments.--Every person subscribing to the guarantee
13 capital of any mutual life insurance company organized under
14 this title shall give to the company his note or obligation, in
15 such form as the bylaws of the company may prescribe, for the
16 unpaid portion of the guarantee capital so subscribed. This note
17 or obligation shall be liable to assessment as necessary by the
18 directors or trustees of the company for the successful conduct
19 of its business. These assessments may be made to meet the
20 losses, expenses, insurance reserve and other obligations of the
21 company until the whole amount of the note or obligation is
22 paid. All assessments shall be made pro rate upon the entire
23 amount of unpaid subscriptions, and, if the assessments are not
24 paid, they shall be collected by legal proceedings.
25 (b) Interest.--The subscribers to the guarantee capital of
26 any mutual life insurance company shall receive interest from
27 the company, payable semiannually at the rate, not exceeding 6%,
28 agreed upon at the time of subscribing, if the net surplus over
29 a requisite reservation for liabilities and contingencies is
30 sufficient to pay the interest. If the interest paid is less
19850H1962B2642 - 740 -
1 than the sum originally agreed on, the interest paid shall be
2 made equal to the sum agreed on when the profits of the company
3 are sufficient.
4 (c) Retirement.--Whenever the lawful invested assets of any
5 mutual life insurance company exceed the reserve and other
6 liabilities to an amount equal to the amount of the guarantee
7 capital subscribed, the directors or trustees may retire or
8 return all or any portion of the guarantee capital to the
9 subscribers. The amount returned shall not exceed that actually
10 paid in, with the interest due and unpaid.
11 § 5353. Surplus or safety fund.
12 Any domestic mutual life insurance company transacting
13 business in this Commonwealth may establish or maintain a
14 surplus or safety fund to an amount not in excess of 10% of its
15 reserve, or $100,000, whichever is greater, and the excess of
16 the market value of its securities over their book value. For
17 cause shown, the commissioner may permit any corporation to
18 accumulate and maintain a surplus or safety fund in excess of
19 this limit for a prescribed period by making a ruling stating
20 his reasons and publishing the ruling in his next annual report.
21 The ruling shall be effective for one year only, but may be
22 renewed for additional periods of one year by the commissioner.
23 SUBCHAPTER E
24 GROUP INSURANCE
25 Sec.
26 5361. Authorized types of group insurance.
27 5362. Coverage of spouse and children.
28 5363. Policies issued to employers or trustees.
29 5364. Policies issued to trustees of joint funds.
30 5365. Policies issued to creditors.
19850H1962B2642 - 741 -
1 5366. Policies issued to employee organizations.
2 5367. Standard policy provisions.
3 5368. Notice of conversion privileges.
4 5369. Assignment of incidents of ownership.
5 5370. Existing policies.
6 5371. Basis of premiums.
7 5372. Voting power of employers.
8 5373. Insurance for public employees.
9 5374. Payment of public employee group premiums.
10 § 5361. Authorized types of group insurance.
11 (a) General rule.--A policy of group life insurance shall
12 not be delivered in this Commonwealth unless it conforms to one
13 of the following descriptions and to the requirements as to each
14 set forth in sections 5363 (relating to policies issued to
15 employees or trustees) through 5366 (relating to policies issued
16 to employee organizations).
17 (1) A policy issued to an employer or to the trustees of
18 a fund established by an employer, which employer or trustees
19 shall be deemed the policyholder, to insure the employees of
20 the employer for the benefit of persons other than the
21 employer.
22 (2) A policy issued to the trustees of a fund
23 established by two or more employers in the same industry or
24 by one or more labor unions, or by one or more employers and
25 one or more labor unions, which trustees shall be deemed the
26 policyholder, to insure employees of the employers or members
27 of the unions for the benefit of persons other than the
28 employers or the unions.
29 (3) A policy issued to a creditor, who shall be deemed
30 the policyholder, to insure debtors of the creditor.
19850H1962B2642 - 742 -
1 (4) A policy issued to a labor union, credit union,
2 policy fraternity, firemen's fraternity or teachers'
3 association or federation, which shall be deemed the
4 policyholder, to insure members thereof for the benefit of
5 persons other than the union, fraternity, association or
6 federation or any of their officials, representatives or
7 agents.
8 (5) Life insurance covering the members of any units of
9 the National Guard or Naval Militia of any state, written
10 under a policy issued to the commanding general of the
11 National Guard or commanding officer of the Naval Militia,
12 who shall be deemed to be the employer for the purposes of
13 this subchapter, the premium on which is to be paid by the
14 members of the units for the benefit of persons other than
15 the employer. When the benefits of the policy are offered to
16 all eligible members of the unit, not less than 75% of the
17 members of the unit shall be so insured.
18 (b) Exclusions.--This subchapter shall not be construed to
19 define as a group the lives covered by:
20 (1) A policy insuring only individuals related by
21 marriage, blood or legal adoption.
22 (2) A joint life policy insuring only individuals having
23 an insurable interest in the lives of each other.
24 § 5362. Coverage of spouse and children.
25 A policy issued pursuant to section 5361(1), (2), (4) or (5)
26 (relating to authorized types of group insurance) may include
27 provisions for the payment by the insurer of life insurance
28 benefits upon the death of the spouse of the insured employee or
29 member, and upon the death of one or more of the children of the
30 insured dependent upon the insured for support and maintenance.
19850H1962B2642 - 743 -
1 The insurance upon the life of the spouse shall not exceed
2 $10,000 or one-half of the amount of insurance on the life of
3 the insured employee or member under the policy, whichever is
4 less. The insurance upon the life of each dependent child shall
5 not exceed $5,000 or one-third of the amount of insurance on the
6 life of the insured employee or member under the policy,
7 whichever is less.
8 § 5363. Policies issued to employers or trustees.
9 A policy issued pursuant to section 5361(1) (relating to
10 authorized types of group insurance) is subject to the following
11 requirements:
12 (1) The employees eligible for insurance under the
13 policy shall be all of the employees of the employer, or all
14 of any class or classes thereof determined by conditions
15 pertaining to their employment. The policy may provide that
16 the term "employees" shall include any or all of the
17 following:
18 (i) The employees of one or more subsidiary
19 corporations, and the employees, individual proprietors
20 and partners of any affiliated corporations, proprietors
21 or partnerships if the business of the employer and of
22 the affiliated corporations, proprietors or partnerships
23 is under common control through stock ownership or
24 contract.
25 (ii) The individual proprietor or partners, if the
26 employer is an individual proprietor or a partnership.
27 (iii) Retired employees.
28 (iv) In the case of a policy issued to insure
29 employees of a public body, elected or appointed
30 officials.
19850H1962B2642 - 744 -
1 (2) The premium for the policy shall be paid by the
2 policyholder, either wholly from funds contributed by the
3 employer or partly from such funds and partly from funds
4 contributed by the insured employees. A policy may not be
5 issued on which the entire premium is to be derived from
6 funds contributed by the insured employees. A policy on which
7 part of the premium is to be derived from funds contributed
8 by the insured employees may be placed in force only if at
9 least 75% of the then eligible employees, excluding any as to
10 whom evidence of individual insurability is not satisfactory
11 to the insurer, elect to make the required contributions. A
12 policy on which none of the premium is to be derived from
13 funds contributed by the insured employees shall insure all
14 eligible employees, or all except any as to whom evidence of
15 individual insurability is not satisfactory to the insurer.
16 (3) The policy shall cover at least ten employees at the
17 date of issue.
18 (4) The amounts of insurance under the policy shall be
19 based upon a plan precluding individual selection either by
20 the employees or by the employer or trustees.
21 § 5364. Policies issued to trustees of joint funds.
22 A policy issued pursuant to section 5361(2) (relating to
23 authorized types of group insurance) is subject to the following
24 requirements:
25 (1) The persons eligible for insurance shall be all of
26 the employees of the employers or all of the members of the
27 unions, or all of any class or classes thereof determined by
28 conditions pertaining to their employment to membership in
29 the unions, or to both. The policy may provide that the term
30 "employees" shall include any or all of the following:
19850H1962B2642 - 745 -
1 (i) Retired employees.
2 (ii) The individual proprietor or partners if an
3 employer is an individual proprietor or a partnership.
4 (iii) The trustees or their employees, or both, if
5 their duties are principally connected with the
6 trusteeship.
7 (2) The premium for the policy shall be paid by the
8 trustees wholly from funds contributed by the employer or
9 employers of the insured persons, by the union or unions, or
10 by both, or partly from such funds and partly from funds
11 contributed by the insured persons. A policy on which part of
12 the premium is to be derived from funds contributed by the
13 insured persons specifically for their insurance may be
14 placed in force only if at least 75% of the then eligible
15 persons, excluding any as to whom evidence of insurability is
16 not satisfactory to the insurer, elect to make the required
17 contributions. A policy on which none of the premium is to be
18 derived from funds contributed by the insured persons
19 specifically for their insurance shall insure all eligible
20 persons, or all except any as to whom evidence of individual
21 insurability is not satisfactory to the insurer.
22 (3) The policy shall cover at date of issue at least 100
23 persons and not less than an average of five persons per
24 employer unit. If the fund is established by the members of
25 an association of employers:
26 (i) either the participating employers shall
27 constitute at date of issue at least 60% of those
28 employer members whose employees are not already covered
29 for group life insurance, or the total number of persons
30 covered at date of issue shall exceed 600; and
19850H1962B2642 - 746 -
1 (ii) the policy shall not require that, if a
2 participating employer discontinues membership in the
3 association, the insurance of his employees shall cease
4 solely by reason of the discontinuance.
5 (4) The amounts of insurance under the policy shall be
6 based upon a plan precluding individual selection either by
7 the insured persons or by the policyholder, employers or
8 unions.
9 § 5365. Policies issued to creditors.
10 A policy issued pursuant to section 5361(3) (relating to
11 authorized types of group insurance) is subject to the following
12 requirements:
13 (1) The debtors eligible for insurance under the policy
14 shall be all of the debtors of the creditor whose
15 indebtedness is repayable in installments, or all of any
16 class or classes thereof determined by conditions pertaining
17 to the indebtedness or to the purchase giving rise to the
18 indebtedness. The policy may provide that the term "debtors"
19 shall include the debtors of any subsidiary corporations, and
20 the debtors of one or more affiliated corporations,
21 proprietors or partnerships if the business of the
22 policyholder and of the affiliated corporations, proprietors
23 or partnerships is under common control through stock
24 ownership, contract or otherwise.
25 (2) The premium for the policy shall be paid by the
26 policyholder, either from the funds of the creditor, or from
27 charges collected from the insured debtors, or from both. A
28 policy on which part or all of the premium is to be derived
29 from the collection from the insured debtors of identifiable
30 charges not required of uninsured debtors shall not include
19850H1962B2642 - 747 -
1 in any class of debtors eligible for insurance debtors under
2 obligations outstanding at its date of issue without evidence
3 of individual insurability unless at least 75% of the then
4 eligible debtors elect to pay the required charges. A policy
5 on which none of the premium is to be derived from the
6 collection of identifiable charges shall insure all eligible
7 debtors, or all except any as to whom evidence of individual
8 insurability is not satisfactory to the insurer.
9 (3) The policy may be issued only if the group of
10 eligible debtors is then receiving new entrants at the rate
11 of at least 100 persons yearly, or may reasonably be expected
12 to receive at least 100 new entrants during the first policy
13 year, and only if the policy reserves to the insurer the
14 right to require evidence of individual insurability if less
15 than 75% of the new entrants become insured.
16 (4) The amount of insurance on the life of any debtor
17 shall not exceed the amount owed by him which is repayable in
18 installments to the creditor, or $60,000, whichever is less.
19 (5) The insurance shall be payable to the policyholder.
20 The payment shall reduce or extinguish the unpaid
21 indebtedness of the debtor to the extent of the payment.
22 § 5366. Policies issued to employee organizations.
23 A policy issued pursuant to section 5361(4) (relating to
24 authorized types of group insurance) is subject to the following
25 requirements:
26 (1) The members eligible for insurance under the policy
27 shall be all of the members of the union, fraternity,
28 association or federation, or all of any class or classes
29 thereof determined by conditions pertaining to their
30 employment, or to membership in the union, fraternity,
19850H1962B2642 - 748 -
1 association or federation, or both.
2 (2) The premium for the policy shall be paid by the
3 policyholder, either wholly from the funds of the union,
4 fraternity, association or federation, or partly from such
5 funds and partly from funds contributed by the insured
6 members specifically for their insurance. A policy may not be
7 issued on which the entire premium is to be derived from
8 funds contributed by the insured members specifically for
9 their insurance. A policy on which part of the premium is to
10 be derived from funds contributed by the insured members
11 specifically for their insurance may be placed in force only
12 if at least 75% of the then eligible members, excluding any
13 as to whom evidence of individual insurability is not
14 satisfactory to the insurer, elect to make the required
15 contributions. A policy on which none of the premium is to be
16 derived from funds contributed by the insured members
17 specifically for their insurance shall insure all eligible
18 members, or all except any as to whom evidence of individual
19 insurability is not satisfactory to the insurer.
20 (3) The policy shall cover at least 25 members at the
21 date of issue.
22 (4) The amounts of insurance under the policy shall be
23 based upon a plan precluding individual selection either by
24 the members or by the union, fraternity, association or
25 federation.
26 § 5367. Standard policy provisions.
27 (a) General rule.--A policy of group life insurance shall
28 not be delivered in this Commonwealth unless it contains in
29 substance the provisions described in subsection (c), or
30 provisions which in the opinion of the commissioner are more
19850H1962B2642 - 749 -
1 favorable to the persons insured, or at least as favorable to
2 the persons insured and more favorable to the policyholder.
3 (b) Exceptions.--The provisions described in subsection
4 (c)(6), (7), (8), (9) and (10) do not apply to policies issued
5 pursuant to section 5361(3) (relating to authorized types of
6 group insurance). The standard provisions required for
7 individual life insurance policies do not apply to group life
8 insurance policies. If the group life insurance policy is on a
9 plan other than the term plan, it shall contain nonforfeiture
10 provisions which in the opinion of the commissioner are
11 equitable to the insured persons and to the policyholder. This
12 section does not require that group life insurance policies
13 contain the same nonforfeiture provisions as are required for
14 individual life insurance policies.
15 (c) Mandatory provisions.--The provisions required under
16 this section are as follows:
17 (1) A provision that the policyholder is entitled to a
18 grace period of 31 days for the payment of any premium due
19 except the first; and that during the grace period the death
20 benefit coverage shall continue in force, unless the
21 policyholder has given the insurer written notice of
22 discontinuance in advance of the date of discontinuance and
23 in accordance with the terms of the policy. The policy may
24 provide that the policyholder is liable to the insurer for
25 the payment of a pro rata premium for the time the policy was
26 in force during the grace period.
27 (2) A provision that the validity of the policy shall
28 not be contested, except for nonpayment of premiums, after it
29 has been in force for two years from its date of issue; and
30 that no statement made by any person insured under the policy
19850H1962B2642 - 750 -
1 relating to his insurability shall be used in contesting the
2 validity of the insurance with respect to which the statement
3 was made after the insurance has been in force prior to the
4 contest for a period of two years during the lifetime of the
5 person or it is not contained in a written instrument signed
6 by him.
7 (3) A provision that a copy of any application of the
8 policyholder shall be attached to the policy when issued;
9 that all statements made by the policyholder or by the
10 persons insured shall be deemed representations and not
11 warranties; and that no statement made by any person insured
12 shall be used in any contest unless a copy of the instrument
13 containing the statement was furnished to the person or his
14 beneficiary.
15 (4) A provision setting forth all conditions under which
16 the insurer reserves the right to require a person eligible
17 for insurance to furnish evidence of individual insurability
18 satisfactory to the insurer as a condition to part or all of
19 his coverage.
20 (5) A provision specifying an equitable adjustment of
21 premiums or benefits, or both, to be made if the age of a
22 person insured has been misstated, including a clear
23 statement of the method of adjustment to be used.
24 (6) A provision that any sum becoming due by reason of
25 the death of the person insured shall be payable to the
26 beneficiary designated by the person insured, subject to:
27 (i) the provisions of the policy if there is no
28 designated beneficiary, as to all or any part of that
29 sum, living at the death of the person insured; and
30 (ii) any right reserved by the insurer in the policy
19850H1962B2642 - 751 -
1 and set forth in the certificate to pay at its option a
2 part of that sum not exceeding $250 to any person
3 appearing to the insurer to be equitably entitled thereto
4 by reason of having incurred funeral or other expenses
5 incident to the last illness or death of the insured.
6 (7) A provision that the insurer will issue to the
7 policyholder for delivery to each person insured an
8 individual certificate setting forth a statement as to the
9 insurance protection to which he is entitled, to whom the
10 insurance benefits are payable and the rights and conditions
11 under paragraphs (8), (9) and (10).
12 (8) A provision that if the insurance, or any portion of
13 it, on a person covered under the policy ceases because of
14 termination of employment or of membership in any class
15 eligible for coverage under the policy, the person may have
16 issued to him by the insurer, without evidence of
17 insurability, an individual policy of life insurance without
18 disability or other supplementary benefits, if an application
19 for the individual policy is made, and the first premium paid
20 to the insurer within 31 days after termination. The
21 individual policy shall, at the option of the person, be on
22 any one of the forms, except term insurance, customarily
23 issued by the insurer at the age and for the amount applied
24 for. The individual policy shall be in an amount not in
25 excess of the amount of life insurance which ceases because
26 of the termination, less, in the case of a person whose
27 membership in the class or classes eligible for coverage
28 terminates but who continues in employment in another class,
29 the amount of any life insurance for which the person is or
30 becomes eligible under any other group policy within 31 days
19850H1962B2642 - 752 -
1 after termination; however, any amount of insurance which has
2 matured on or before the date of termination as an endowment
3 payable to the person insured, whether in one sum or in
4 installments or in the form of an annuity, shall not, for the
5 purposes of this sentence, be deemed included in the amount
6 which ceases because of the termination. The premium on the
7 individual policy shall be at the insurer's customary rate
8 applicable to the form and amount of the individual policy,
9 to the class of risk to which the person then belongs, and to
10 the person's age attained on the effective date of the
11 individual policy.
12 (9) A provision that if the group policy terminates or
13 is amended so as to terminate the insurance of any class of
14 insured persons, every person insured at the date of the
15 termination whose insurance terminates and who has been so
16 insured for at least five years prior to the termination date
17 may have issued to him by the insurer an individual policy of
18 life insurance, subject to the conditions and limitations
19 provided under paragraph (8). However, the group policy may
20 provide that the amount of the individual policy shall not
21 exceed the lesser of:
22 (i) the amount of the person's life insurance
23 protection ceasing because of such termination or
24 amendment, less the amount of any life insurance for
25 which he is eligible under any group policy issued or
26 reinstated by the same or another insurer within 31 days
27 after such termination; or
28 (ii) $2,000.
29 (10) A provision that if a person insured under the
30 group policy dies during the period within which he would
19850H1962B2642 - 753 -
1 have been entitled to have an individual policy issued to him
2 in accordance with paragraph (8) or (9) and before the
3 individual policy becomes effective, the amount of life
4 insurance which he would have been entitled to have issued to
5 him under the individual policy shall be payable as a claim
6 under the group policy, whether or not application for the
7 individual policy or the payment of the first premium has
8 been made.
9 § 5368. Notice of conversion privileges.
10 If any individual insured under a group life insurance policy
11 delivered in this Commonwealth becomes entitled under the terms
12 of the policy to have an individual policy of life insurance
13 issued to him without evidence of insurability, subject to
14 making of application and payment of the first premium within
15 the period specified in the policy, and if the individual is not
16 given notice of the existence of this right at least 15 days
17 prior to the expiration date of the period, then the individual
18 shall have an additional period within which to exercise the
19 right. This section does not continue any insurance beyond the
20 period provided in the policy. This additional period shall
21 expire 15 days after the individual is given the notice but in
22 no event shall the additional period extend beyond 60 days after
23 the expiration date of the period provided in the policy.
24 Written notice presented to the individual or mailed by the
25 policyholder to the last known address of the individual or
26 mailed by the insurer to the last known address of the
27 individual as furnished by the policyholder shall constitute
28 notice for the purpose of this section.
29 § 5369. Assignment of incidents of ownership.
30 Notwithstanding any provision of law, a person whose life is
19850H1962B2642 - 754 -
1 insured under any policy of group life insurance, whether or not
2 the policy is otherwise subject to this subchapter, may make an
3 assignment of all or any part of his incidents of ownership in
4 the insurance, including any right to designate a beneficiary
5 thereunder and any right to have an individual policy issued
6 upon termination either of employment or of the policy of group
7 life insurance. However, the insurer and the group policyholder
8 may prohibit or restrict such assignment by appropriate policy
9 provisions.
10 § 5370. Existing policies.
11 The provisions of this subchapter do not invalidate or
12 otherwise affect any policy or contract of group life insurance
13 in effect on September 1, 1949.
14 § 5371. Basis of premiums.
15 (a) Regulations.--The commissioner shall promulgate
16 regulations, except with respect to group life insurance set
17 forth in sections 5361(3) (relating to authorized types of group
18 insurance) and 5365 (relating to policies issued to creditors)
19 prescribing the minimum group life insurance premiums to be
20 charged for the first year of insurance, based on an examination
21 of the experience of the insurers and on reasonable assumptions
22 as to interest, mortality and expense. No such regulation shall
23 be promulgated except after hearing, of which notice shall be
24 given to all affected insurers.
25 (b) Policy provisions.--A domestic, foreign or alien life
26 insurance company shall not deliver in this Commonwealth any
27 policy of group life insurance the premium for which shall be
28 less than the premium prescribed in the regulations promulgated
29 by the commissioner. However, any such policy may provide for a
30 readjustment of the rate based on experience at the end of the
19850H1962B2642 - 755 -
1 first or any subsequent year of insurance, which readjustment
2 may be made retroactive for that policy year only.
3 § 5372. Voting power of employers.
4 In every group policy issued by a domestic life insurance
5 company where the employer is the policyholder under section
6 5361 (relating to authorized types of group insurance), the
7 employer, if entitled to vote at a meeting of the company, shall
8 be entitled to one vote.
9 § 5373. Insurance for public employees.
10 Any Commonwealth agency or political subdivision may make
11 contracts of insurance with any insurance company, nonprofit
12 hospitalization corporation or nonprofit medical service
13 corporation authorized to transact business in this Commonwealth
14 insuring its elected or appointed officers and employees or any
15 class thereof, or their dependents, under a policy or policies
16 of group insurance covering life, health, hospitalization,
17 medical service or accident insurance, and may contract with any
18 such company granting annuities or pensions for the pensioning
19 of the employees. For these purposes, the Commonwealth agency or
20 political subdivision may agree to pay part or all of the
21 premiums or charges for carrying those contracts and may
22 appropriate out of its treasury any money necessary to pay those
23 premiums or charges. The proper officer, agency, board or
24 commission of any political subdivision may deduct from the
25 compensation of the officer or employee such part of the premium
26 as is payable by the officer or employee and as authorized by
27 the officer or employee in writing. All contracts procured under
28 this section shall conform and be subject to all the provisions
29 of law concerning group insurance and group annuity contracts.
30 § 5374. Payment of public employee group premiums.
19850H1962B2642 - 756 -
1 (a) Withholding.--Any officer or officers of any
2 Commonwealth agency or political subdivision, whose duty it is
3 to pay compensation to any elected or appointed officer or
4 employee, shall, upon receipt of written authorization from the
5 officer or employee so to do, withhold from the compensation any
6 premium or other charge due from the officer or employee for
7 group insurance covering life, health, hospitalization, medical,
8 osteopathic or dental service or accident insurance, pursuant to
9 any contract with any corporation or association authorized to
10 transact such business with the Commonwealth. The duty imposed
11 of making such salary deductions shall extend to any premiums or
12 other charges due under such contracts, whether made by the
13 officers or employees directly as members of a group, or made on
14 behalf of such officers or employees by the Commonwealth agency
15 or any political subdivision.
16 (b) Payment to insurer.--The deductions required to be made
17 shall be paid directly by the officer making the deductions to
18 the corporation or association entitled thereto under the
19 contract.
20 (c) Status of deductions.--A corporation or association
21 shall not have any right to any deductions under this section
22 until they are actually paid over to it by the officer making
23 the deductions. The Commonwealth agency or political subdivision
24 shall not be subject to any liability with respect to the
25 deductions, except as to the amount actually deducted.
26 (d) Revocation of authority to withhold.--Any officer or
27 employee who has authorized the making of deductions from
28 compensation under this section may revoke the authority to make
29 the deductions by delivering a written revocation to the officer
30 making the deduction at least 15 days before the revocation is
19850H1962B2642 - 757 -
1 to take effect. Upon receipt of the revocation the officer shall
2 cease to make the deduction.
3 SUBCHAPTER F
4 INDUSTRIAL INSURANCE
5 Sec.
6 5381. Definition.
7 5382. Uniform policy provisions.
8 5383. Prohibited policy provisions.
9 5384. Notice of right to examine policies.
10 § 5381. Definition.
11 As used in this subchapter the term "industrial insurance"
12 means life or endowment insurance:
13 (1) under which premiums are payable weekly; or
14 (2) under which premiums are payable monthly or more
15 often, other than weekly, if the face amount of insurance
16 provided in the policy is less than $1,000.
17 § 5382. Uniform policy provisions.
18 (a) Required provisions.--A policy of industrial insurance
19 shall not be delivered in this Commonwealth unless the words
20 "industrial insurance" are printed upon the policy as part of
21 the descriptive matter and unless it contains in substance the
22 following provisions:
23 (1) A provision that the insured is entitled to a grace
24 period of four weeks within which the payment of any premium
25 after the first may be made, except that if premiums are
26 payable monthly the insured shall be entitled to a grace
27 period of one month or 30 days. During the grace period the
28 policy shall continue in full force, but if the policy
29 becomes a claim during the grace period before the overdue
30 premiums are paid, the amount of overdue premiums may be
19850H1962B2642 - 758 -
1 deducted in any settlement under the policy.
2 (2) A provision that the policy constitutes the entire
3 contract between the parties. If the company desires to make
4 the application a part of the contract, it may do so if a
5 copy of the application is endorsed upon or attached to the
6 policy when issued; in this case the policy shall contain a
7 provision that the policy and the application constitute the
8 entire contract between the parties.
9 (3) A provision that the policy shall be incontestable
10 after it has been in force, during the lifetime of the
11 insured, two years from its date of issue, except for
12 nonpayment of premium; and that, at the option of the
13 company, provisions relating to disability benefits and those
14 granting additional insurance specifically against death by
15 accident or accidental means may also be excepted. A clause
16 in any policy of industrial life insurance providing that the
17 policy shall be incontestable after a specified period shall
18 preclude only a contest of the validity of the policy and
19 shall not preclude the assertion, at any time, of defenses
20 based upon provisions in the policy which exclude or restrict
21 coverage, whether or not such restrictions or exclusions are
22 excepted in that clause.
23 (4) A provision that, if the age of the insured or of
24 any other person whose age is considered in determining the
25 premium has been misstated, the amount payable or benefit
26 accruing under the policy shall be that which the premium
27 would have purchased at the correct age.
28 (5) A provision that the policy shall participate in the
29 surplus of the company; that the company shall annually
30 determine the portion of any divisible surplus accruing on
19850H1962B2642 - 759 -
1 the policy; and stating the conditions under which the
2 company shall apportion the surplus to the policyholder or
3 the party entitled thereto.
4 (6) A provision for a nonforfeiture benefit and cash
5 surrender value.
6 (i) In the case of any policy issued prior to the
7 operative date of the former section 410A (relating to
8 standard nonforfeiture law of life insurance) of the act
9 of May 17, 1921 (P.L.682, No.284), known as The Insurance
10 Company Law of 1921, a nonforfeiture benefit shall be
11 provided in event of default in premium payments after
12 premiums have been paid for three years. The
13 nonforfeiture benefit shall be a stipulated form of
14 insurance, effective from the due date of the defaulted
15 premium, the net value of which shall not be less than
16 the reserve on the policy, exclusive of any reserves for
17 provisions:
18 (A) relating to benefits in the event of
19 specific types of disability;
20 (B) granting additional insurance specifically
21 against death by accident; and
22 (C) granting other benefits in addition to life
23 insurance;
24 at the end of the last completed quarter of the policy
25 year for which premiums have been paid, and on any
26 dividend additions to such reserve. The policy shall
27 specify the mortality table, the rate of interest and the
28 method of valuation, if other than net level premium,
29 adopted for computing the reserve, less a specified
30 maximum percentage, not greater than 2.5% of the maximum
19850H1962B2642 - 760 -
1 face amount insured by the policy and of any dividend
2 additions thereto and less any existing indebtedness to
3 the company on or secured by the policy. The percentage
4 or other rule of calculation, stated as to permit
5 determination of the value, shall be specified for each
6 year for which required values are not included in the
7 policy. A company may, in lieu of the provision permitted
8 under this section for the deduction from the reserve of
9 the specified maximum percentage, provide that a
10 deduction of 20% of the reserve may be made, or a
11 deduction of the 2.5% of the maximum face amount insured
12 or 20% of the reserve at the option of the company. After
13 premiums have been paid for five years, the policy may be
14 surrendered to the company at its home office within four
15 weeks of the due date of the defaulted premium for a
16 specific cash value at least equal to the sum which would
17 otherwise be available for the purchase of insurance. The
18 company may defer payment of the cash value for not more
19 than six months after the application is made. If the
20 cash or other nonforfeiture value is not requested within
21 the required period, it shall be provided that a
22 stipulated form of insurance shall automatically become
23 effective.
24 (ii) In the case of any policy issued on or after
25 the operative date of the former section 410A of The
26 Insurance Company Law of 1921, a nonforfeiture benefit
27 and cash surrender value shall be provided in accordance
28 with section 5322 (relating to standard nonforfeiture law
29 for life insurance).
30 (7) A table showing in figures the nonforfeiture options
19850H1962B2642 - 761 -
1 available under the policy at the end of each year upon
2 default in premium payments during the premium payment
3 period, but not to exceed the first 20 years of the policy;
4 and a provision that the company will furnish upon request an
5 extension of the table beyond the years shown in the policy.
6 (8) A provision that, if the policy is not surrendered
7 for its cash value or if the period of extended insurance has
8 not expired, the policy may be reinstated, upon written
9 application, within one year from the date of default in
10 payment of premiums, upon:
11 (i) the payment of all overdue premiums and, at the
12 option of the company, interest at a rate not to exceed
13 8% a year;
14 (ii) the payment or reinstatement of any other
15 indebtedness to the company upon the policy, and, at the
16 option of the company, interest thereon at a rate
17 determined under section 5326 (relating to policy loan
18 interest rates) compounded annually; and
19 (iii) the presentation of evidence satisfactory to
20 the company of the insurability of the insured.
21 (9) A provision that when a policy becomes a claim by
22 the death of the insured, settlement shall be made upon
23 receipt of proof of death.
24 (10) A form number and title on the face of the policy
25 clearly describing its form.
26 (b) Optional provisions.--Any industrial insurance policy
27 may be delivered in this Commonwealth which, in the opinion of
28 the commissioner, contains provisions more favorable to the
29 policyholder than required under subsection (a). The policies of
30 a foreign or alien insurance company may contain, when delivered
19850H1962B2642 - 762 -
1 in this Commonwealth, any provision prescribed by the law of the
2 state or foreign country under which the company is organized
3 not contrary to the provisions of subsection (a). The policies
4 of a domestic life insurance company, when delivered in any
5 other state or any foreign country, may contain any provision
6 required by the law of the state or foreign country to be
7 contained in the policies delivered therein.
8 (c) Applicability.--Any of the provisions set forth in
9 subsection (a), or parts thereof, not applicable to
10 nonparticipating policies shall to that extent not be
11 incorporated therein. The provisions of this section do not
12 apply to policies issued or granted pursuant to the
13 nonforfeiture provisions prescribed in subsection (a)(6).
14 § 5383. Prohibited policy provisions.
15 A policy of industrial insurance shall not be delivered in
16 this Commonwealth if it contains any of the following
17 provisions:
18 (1) A provision limiting the time within which any
19 action at law or in equity may be commenced to less than two
20 years after the cause of action accrues.
21 (2) A provision by which the settlement on the maturity
22 of any policy shall be of less value than the amount promised
23 on the face of the policy plus any dividend additions less
24 any indebtedness to the company on or secured by the policy,
25 and less any premium that may be deducted by the terms of the
26 policy.
27 (3) A provision deeming the agent soliciting the
28 insurance to be the agent of the person insured under the
29 policy, or making the acts or representations of that agent
30 binding upon the person so insured.
19850H1962B2642 - 763 -
1 (4) A provision by which the company may pay the
2 proceeds of the policy at the death of the insured to any
3 person other than the beneficiary designated in the policy.
4 However, the policy may provide that, if the beneficiary does
5 not within the period stated in the policy, which shall not
6 be less than 30 days after the death of the insured, submit
7 proof of claim in the manner and form required by the policy,
8 or if there is no beneficiary designated in the policy other
9 than the estate of the insured, or if the beneficiary is a
10 minor or is not legally qualified to give a valid release or
11 dies before the insured, then the company may pay the
12 proceeds of the policy to the executor or administrator of
13 the insured, or to any relative by blood or marriage of the
14 insured appearing to the company to be equitably entitled to
15 those proceeds.
16 (5) A provision by which the company may deny liability
17 under the policy for the reason that the insured has
18 previously obtained other insurance from the same company.
19 § 5384. Notice of right to examine policies.
20 A policy of industrial insurance shall not be delivered in
21 this Commonwealth unless it has prominently printed on the first
22 page or attached a notice stating in substance that the
23 policyholder may return the policy within at least ten days of
24 its delivery and to have the premium paid refunded if, after
25 examination of the policy, the policyholder is not satisfied
26 with it for any reason. If a policyholder pursuant to this
27 notice returns the policy to the insurer at its home or branch
28 office or to the agent through whom it was purchased, it shall
29 be void from the beginning and the parties shall be in the same
30 position as if no policy had been issued.
19850H1962B2642 - 764 -
1 SUBCHAPTER G
2 LIMITED LIFE INSURANCE COMPANIES
3 Sec.
4 5391. Definition.
5 5392. Powers of limited life insurance companies.
6 5393. Reincorporation as limited life insurance company.
7 5394. Procedure for reincorporation.
8 5395. Authorization to do business.
9 5396. Reserves and capital stock requirements.
10 5397. Election of directors.
11 § 5391. Definition.
12 As used in this subchapter the term "limited life insurance
13 company" means any corporation which writes life, personal
14 injury, disability or health insurance and which is incorporated
15 or reincorporated under this subchapter or under:
16 (1) the act of April 28, 1903 (P.L.329, No.259),
17 relating to incorporation and regulation of corporations for
18 the purpose of transacting certain types of insurance; or
19 (2) the act of April 20, 1927 (P.L.317, No.190),
20 relating to reincorporation of beneficial or protective
21 societies for the purpose of transacting certain types of
22 insurance.
23 § 5392. Powers of limited life insurance companies.
24 (a) General powers.--A limited life insurance company may
25 issue policies agreeing to pay not more than:
26 (1) $50 per week in case of disability from sickness or
27 accident;
28 (2) $1,000 in case of death from natural causes; or
29 (3) $2,000 in case of death from accidental causes;
30 and issue policies of endowment insurance subject to the
19850H1962B2642 - 765 -
1 provisions of this subchapter notwithstanding any limitation to
2 the contrary in any statute or in its charter.
3 (b) Additional life insurance.--The company may issue
4 policies agreeing to pay not more than $1,500 in the event of
5 death from natural causes, nor more than double that amount in
6 the event of death from accidental causes, if it has:
7 (1) In the case of stock companies, capital of $100,000,
8 and a surplus of at least $25,000.
9 (2) In the case of mutual companies, a surplus of at
10 least $100,000.
11 (c) Additional disability insurance.--The company may issue
12 policies agreeing to pay in excess of the weekly limitations
13 prescribed in subsection (a), but not exceeding $105 per week,
14 and agreeing to pay an additional benefit for hospital and
15 medical expenses for any one sickness or accident not exceeding
16 $300 in the event of disability from sickness or accident, if
17 the policies limit payment of benefits to periods during which
18 insured is admitted as a full-time patient in a licensed and
19 incorporated hospital if it has:
20 (1) In the case of stock companies, additional capital
21 of $25,000 and a surplus at least $25,000.
22 (2) In the case of mutual companies, an additional
23 surplus in the sum of at least $25,000.
24 The additional capital and additional surplus required by
25 paragraphs (1) and (2) are in addition to that required under
26 this section or otherwise under this title.
27 (d) Alternative limitations.--The company may issue policies
28 agreeing to pay a total of not more than $5,000 in case of death
29 from natural causes or $10,000 in case of death from accidental
30 causes. The company may issue policies of endowment insurance
19850H1962B2642 - 766 -
1 agreeing to pay not more than $5,000 upon maturity if the total
2 amount of insurance issued by the company on any one life does
3 not exceed the limits prescribed in this subsection. The company
4 may issue policies pursuant to this subsection if it has:
5 (1) In the case of stock companies, capital of $150,000
6 and a surplus paid in at least equal to half the amount of
7 its capital stock. Any limited life insurance company may
8 revise its capital stock structure so that it shall have a
9 capital stock of $150,000 divided into shares of not less
10 than $10 par value, payment for which shall be made in cash
11 at the time of subscribing.
12 (2) In the case of mutual companies, a surplus of not
13 less than $150,000.
14 § 5393. Reincorporation as limited life insurance company.
15 Any corporation or any two corporations now formed or
16 organized under the first paragraph IX of section 2 of the act
17 of April 29, 1874 (P.L.73, No.32), relating to the incorporation
18 and regulation of certain corporations, except fraternal,
19 benevolent, charitable or secret societies issuing beneficial
20 certificates and paying benefits to their membership through the
21 lodge system, and insurance or relief associations formed by or
22 for the exclusive benefit of employees of corporations or firms
23 or formed by or for the exclusive benefit of members of any
24 religious corporation or association, may be reincorporated, or
25 merged and reincorporated, as a limited life insurance company.
26 However, no corporation may proceed under this section unless
27 operating in compliance with Chapter 41 (relating to beneficial
28 societies).
29 § 5394. Procedure for reincorporation.
30 Any corporation desiring to proceed under section 5393
19850H1962B2642 - 767 -
1 (relating to reincorporation as limited life insurance company)
2 shall proceed as prescribed in this section. A meeting of the
3 members of the corporation shall be held. If a majority of the
4 members of each corporation vote or authorize a vote in favor of
5 the reincorporation or merger and reincorporation, a resolution
6 to that effect shall be adopted, and each such resolution shall
7 be recorded in the office of the recorder of deeds in the county
8 where each corporation has its principal office. The directors
9 of the corporation or the respective directors of the two
10 corporations acting jointly, as the case may be, shall proceed
11 under Chapter 33 (relating to incorporation of insurance
12 companies). Upon the approval of the articles of agreement, the
13 corporation or corporations shall be deemed organized under
14 section 5393, and all the property rights, liabilities and
15 obligations of the former corporation or corporations shall be
16 deemed transferred to the successor corporation without further
17 act or deed.
18 § 5395. Authorization to do business.
19 (a) Stock companies.--When the entire amount of the
20 authorized capital of a stock insurance company incorporated
21 under section 5393 (relating to reincorporation as limited life
22 insurance company) has been paid in, certificates shall be
23 issued therefor to the persons entitled to receive them, which
24 shall be transferable upon the books of the company. The
25 president or secretary of the company shall then notify the
26 commissioner that the entire capital of the company has been
27 paid in and that it is ready to commence business. Upon receipt
28 of the notice, the commissioner shall examine the company and,
29 if he finds that it has complied with the provisions of section
30 5394 (relating to procedure for reincorporation) and has funds
19850H1962B2642 - 768 -
1 equal to the amount of its capital, he shall issue to the
2 company a certificate showing that it is lawfully organized and
3 is authorized to transact the business of insurance in this
4 Commonwealth as a limited life insurance company under this
5 title.
6 (b) Mutual companies.--In the case of a mutual life
7 insurance company incorporated under section 5393, upon the
8 receipt of a notice from the president or secretary of the
9 company, the commissioner shall make an examination and, if he
10 finds that the company has the necessary amount of insurance in
11 force and that the guaranteed capital has been paid in, he shall
12 issue a certificate authorizing the company to commence business
13 as a limited life insurance company under this title.
14 (c) Examination of companies.--The commissioner may also
15 conduct such examination of any proposed company as is
16 necessary, to determine whether the responsibility, character
17 and general fitness for the business of the incorporators and
18 directors named in the articles are such as to command the
19 confidence of the public and to warrant the belief that the
20 business of the proposed company will be lawfully, honestly and
21 efficiently conducted. Until the commissioner issues a
22 certificate authorizing companies to commence business under
23 this section, the companies shall have the same powers to
24 transact the business of insurance as were possessed by the
25 companies prior to the reincorporation.
26 § 5396. Reserves and capital stock requirements.
27 (a) Reserves.--Any corporation formed under the section 5393
28 (relating to reincorporation as limited life insurance company)
29 shall place reserves on the life portion contained in all
30 policies issued based upon a standard table of mortality, with
19850H1962B2642 - 769 -
1 interest at a rate of not more than 3.5%, as approved by the
2 commissioner. Reserves shall be carried on the disability
3 feature of 50% of the actual weekly, monthly or annual premiums
4 in force and shall be charged on all definite and outstanding
5 incurred claims.
6 (b) Capital stock.--Capital stock of a stock company formed
7 under section 5393 shall not be less than $25,000 and shall be
8 divided into shares of not less than $10 each. Payment for the
9 shares shall be made in cash, and 10% on each share shall be
10 paid at the time of subscribing, with the balance paid at such
11 times as the company may direct, not more than one year from the
12 time of subscription. The company may provide such rules with
13 regard to forfeiture of partial payments on subscriptions as
14 advisable; these rules shall be binding upon the subscribers, if
15 disclosed at the time of subscription. The company shall have a
16 surplus paid in at least equal to the amount of the capital
17 stock.
18 (c) Mutual companies.--Any mutual company formed under
19 section 5393 shall be authorized to do the business of insurance
20 when it has life insurance in force in an amount of not less
21 than $250,000 upon at least 2,000 persons. The company shall not
22 be authorized to do the business of insurance until it has a
23 guaranteed capital of at least $25,000 and a surplus of at least
24 $25,000 and until it has deposited with the commissioner $25,000
25 in cash or approved securities. The commissioner shall hold the
26 amount deposited for the benefit of the members of the
27 corporation and its creditors, preference being given in the
28 following order:
29 (1) Claims under policies.
30 (2) Salaries of employees.
19850H1962B2642 - 770 -
1 (3) General creditors.
2 § 5397. Election of directors.
3 The annual meeting for election of directors of any company
4 formed under section 5393 (relating to reincorporation as
5 limited life insurance company) shall be held at such time, on
6 or before the May 1, as the bylaws of the company may direct.
7 The notice of the time and place of the meeting shall be given
8 to the stockholders or members as is provided in the bylaws. At
9 the annual meeting, the stockholders or members shall elect by
10 ballot not less than 5 nor more than 13 directors, to serve for
11 one year and until their successors are duly chosen. At any
12 annual meeting of the stockholders or members, the directors who
13 are to be chosen may be divided into not more than four classes
14 to be elected for staggered terms. If a vacancy occurs the
15 remaining directors shall elect a replacement to fill the
16 vacancy during the remainder of the term of the director
17 replaced.
18 CHAPTER 55
19 PROPERTY AND CASUALTY INSURANCE
20 Subchapter
21 A. General Regulation
22 B. Workmen's Compensation Insurance
23 C. Employers' Mutual Liability Insurance Associations
24 D. Arson Reporting Immunity
25 E. Anti-Arson Applications
26 F. Miscellaneous Provisions
27 SUBCHAPTER A
28 GENERAL REGULATION
29 Sec.
30 5501. Applicability of chapter.
19850H1962B2642 - 771 -
1 5502. Financial requirements of foreign or alien companies.
2 5503. Investment of capital.
3 5504. Investments in financial institutions.
4 5505. Investment of surplus.
5 5506. Authorized holdings of real estate.
6 5507. Dividends.
7 5508. Reduction and withdrawal of capital stock.
8 5509. Procedure when capital impaired.
9 5510. Resident agents for foreign or alien insurance entities.
10 § 5501. Applicability of chapter.
11 (a) General rule.--All stock casualty insurance companies
12 incorporated or formed by authority of any general or special
13 law shall be subject to the provisions of this chapter, except
14 where the provision clearly indicates otherwise.
15 (b) Specific authorizations.--Stock companies organized
16 under the act of April 28, 1903 (P.L.329, No.259), relating to
17 the incorporation and regulation of insurance corporations,
18 having a paid-up capital of not less than $100,000, may issue
19 policies providing personal accident and sickness indemnity as
20 specified in section 3302(c)(2) (relating to authorized classes
21 of insurance) and also an indemnity for death arising from
22 natural causes for an amount not exceeding $100,000. Stock
23 companies organized under the act of April 29, 1874 (P.L.73,
24 No.32), relating to the incorporation and regulation of certain
25 corporations for the purpose of guaranteeing the fidelity of
26 persons in positions of trust and to act as surety on official
27 bonds, may transact business under this title by filing with the
28 Secretary of the Commonwealth and with the commissioner a
29 resolution of the board of directors, approved by the
30 stockholders at a meeting specially called for that purpose,
19850H1962B2642 - 772 -
1 accepting the provisions of this title and agreeing to be
2 governed thereby. This acceptance, when filed, shall exempt the
3 company from any otherwise applicable provisions of the act of
4 April 29, 1874 (P.L.73, No.32).
5 § 5502. Financial requirements of foreign or alien companies.
6 (a) Stock companies.--Foreign and alien stock casualty
7 insurance companies, organized to transact any of the classes of
8 insurance mentioned in section 3302(c) (relating to authorized
9 classes of insurance), in order to be licensed to do business in
10 this Commonwealth, shall be required to have a paid up and
11 safely invested capital, if a company of another state, or a
12 deposit in the United States, if an alien company, of at least
13 the amount required in this title for domestic companies. This
14 title does not prevent any foreign stock life insurance company
15 now engaged in the business of accident and sickness or
16 liability insurance, or both, from continuing in these
17 businesses, if the amount of its paid-up capital is at least the
18 amount required of a domestic company to transact the business
19 of life insurance and at least $50,000 for each of the other
20 classes of insurance undertaken.
21 (b) Mutual companies.--A foreign or alien mutual casualty
22 insurance company, having by its charter the power to transact
23 the insurance business specified in section 3302(c), in order to
24 be authorized to transact the classes of business mentioned in
25 section 3302(c) shall have a surplus over all liabilities,
26 including unearned premium and loss reserves, of not less than
27 the capital required of a domestic stock company to transact the
28 same classes of insurance.
29 § 5503. Investment of capital.
30 Every domestic stock casualty insurance company shall invest
19850H1962B2642 - 773 -
1 and keep invested all its capital in sound investments as
2 enumerated in this section, except such cash as may be required
3 in the transaction of its business. The investments shall
4 include the following:
5 (1) Such real estate as is authorized by section 5506
6 (relating to authorized holdings of real estate).
7 (2) Bonds of the United States, of any state or of any
8 province or territory of the Dominion of Canada, and bonds or
9 debentures issued by Federal land banks, Federal intermediate
10 credit banks or banks for cooperatives under the Farm Credit
11 Act of 1971 (Public Law 92-181, 12 U.S.C. § 2001 et seq.) or
12 by Federal home loan banks under the Home Loan Bank Act (47
13 Stat. 725, 12 U.S.C. § 1421 et seq.).
14 (3) The legally authorized bonds or notes of any
15 municipality, school or water district of this Commonwealth
16 or of any other state of the United States or province of the
17 Dominion of Canada.
18 (4) The bonds or notes of any solvent railroad or street
19 railway corporation upon which no default in interest has
20 been made.
21 (5) Ground rents and loans upon improved and
22 unencumbered real estate. Except for bonds secured by
23 mortgages which are insured by, or for which a commitment to
24 insure has been made by, the Federal Housing Administrator,
25 under the provisions for mutual mortgage insurance in Title
26 II of the National Housing Act (48 Stat. 1247, 12 U.S.C. §
27 1707 et seq.) for the purpose of financing the construction
28 or purchase of dwellings and similar residential property and
29 the refinancing of mortgages, no such loan shall exceed 66
30 2/3% of the fair market value of the real estate.
19850H1962B2642 - 774 -
1 (6) Debentures issued by the Federal Housing
2 Administrators in settlement of claims for insurance under
3 Title II of the National Housing Act.
4 (7) Securities of national mortgage associations or
5 similar national mortgage credit institutions organized under
6 Title III of the National Housing Act (48 Stat. 1252, 12
7 U.S.C. § 1716 et seq.).
8 (8) Bonds, notes or obligations issued, assumed or
9 guaranteed by the International Bank for Reconstruction and
10 Development.
11 (9) If the company which has $1,000,000 of capital and
12 $1,000,000 of surplus, the capital of any domestic or foreign
13 stock casualty insurance company, solely to transact the same
14 class of business in countries other than the United States.
15 These investments shall be limited to 30% of the par value of
16 the capital stock of the investing company.
17 (10) The securities of a foreign government in a
18 sufficient amount from its reserves in order to enable it to
19 comply with the laws of the foreign government and transact
20 business therein, if the commissioner permits the company to
21 make such an investment.
22 (11) Shares of state and regional business development
23 credit corporations formed under the law of this
24 Commonwealth.
25 (12) Bonds and notes of the Pennsylvania Housing Finance
26 Agency.
27 (13) Bonds, notes and obligations issued, assumed or
28 guaranteed by the Inter-American Development Bank.
29 (14) Bonds, notes and obligations issued by the
30 Pennsylvania Civil Disorder Authority.
19850H1962B2642 - 775 -
1 (15) Bonds, notes and obligations issued, assumed or
2 guaranteed by the Asian Development Bank.
3 (16) Subject to the provisions of section 5504 (relating
4 to investments in financial institutions), the investments
5 described in section 5504(a).
6 § 5504. Investments in financial institutions.
7 (a) Applicability.--This section shall apply to:
8 (1) Any interest-bearing deposit, savings account or
9 certificate of deposit in any bank, bank and trust company,
10 savings bank or national banking association located in this
11 Commonwealth.
12 (2) A savings account or certificate of deposit of any
13 savings association incorporated under the law of this
14 Commonwealth or of any savings and loan association
15 incorporated under Federal law.
16 (b) Limitation on use.--Any investment described in
17 subsection (a) shall be an authorized investment if the
18 interest-bearing deposit, savings account or certificate of
19 deposit is not made, opened or deposited in any financial
20 institution wherever located which is directly or indirectly,
21 through a holding company or in any other manner, affiliated
22 with any insurance entity making or depositing the interest-
23 bearing deposits or certificates of deposit, in the case of
24 investments described in subsection (a)(1), or making,
25 depositing or opening the savings accounts, in the case of
26 investments described in subsection (a)(2). Funds invested in
27 certificates of deposit shall not be encumbered directly or
28 indirectly as security, collateral or as counterbalance funds
29 for any subsidiary, affiliate, associated concern or other
30 person except as specifically approved by written order of the
19850H1962B2642 - 776 -
1 commissioner.
2 (c) Limitation on amount.--Neither the total investments
3 described in subsection (a)(1), nor the total investments
4 described in subsection (a)(2), in any single depository or
5 branches thereof shall at any time exceed 10% of the larger of:
6 (1) the company's total admitted invested assets at the
7 time of such investment or at any subsequent annual statement
8 reporting date; or
9 (2) the maximum amount insured by Federal insurance
10 coverage on such investments.
11 Neither the investments described in subsection (a)(1), nor the
12 investments described in subsection (a)(2), considered
13 separately, made in all depositories or branches thereof shall
14 at any time exceed 25% of the company's total admitted invested
15 assets at the time of the investment or at any subsequent annual
16 statement reporting date, unless the investments made in any
17 single depository or branches thereof is not greater than the
18 Federal insurance limitations.
19 (d) Time allowed for compliance.--Whenever the investments
20 authorized by this section exceed the maximum amounts provided
21 in subsection (c), the investments shall be reduced to comply
22 therewith within 90 days of the occurrence of the excess or at
23 the earliest maturity date or the next optional renewal date,
24 exercisable by either holder or issuer, of any investment
25 mentioned in this section.
26 (e) Penalty.--Any company which fails to cure a violation of
27 subsection (c) within the time allowed under subsection (d)
28 shall pay a penalty not to exceed $100 for each day during which
29 the failure continues. The penalty shall be imposed by the
30 commissioner after appropriate hearing. No value as an admitted
19850H1962B2642 - 777 -
1 asset shall be allowed the excess of the investment over the
2 maximum amounts provided in subsection (c).
3 § 5505. Investment of surplus.
4 (a) Authorized investments.--Any money over and above the
5 capital of any such stock casualty insurance company may be
6 loaned upon the security of investments authorized by section
7 5503 (relating to investment of capital) or invested in such
8 securities or invested in:
9 (1) Bonds or notes of any public instrumentality of any
10 state or of any foreign country or political subdivision
11 thereof.
12 (2) Stock or other evidence of indebtedness of any
13 solvent corporation created under Federal law or the law of
14 any jurisdiction mentioned in paragraph (1) or loaned upon
15 the pledge of the same, except its own stock.
16 (3) Stock or shares of any regulated investment company
17 formed under Federal law or the law of any state or of the
18 Dominion of Canada or any province thereof.
19 (b) Restrictions.--The total investments made by such
20 company in stocks of other insurance companies which have
21 invested in or loaned its funds on the stock of the first
22 investing company shall not exceed 5% of the gross assets of the
23 first investing company. The total investments made or held by
24 the company in the stocks or other evidence of indebtedness of
25 solvent alien corporations shall not exceed 10% of the funds of
26 the company over and above its capital and the reserves which it
27 is required to maintain under this title. The current market
28 value of those securities at the time of any loan thereon shall
29 be at least 15% more than the sum loaned. A stock casualty
30 insurance company shall not invest or hold any of its funds in
19850H1962B2642 - 778 -
1 any unincorporated business or enterprise, or in the stock or
2 evidence of indebtedness of any corporation, if the owners or
3 holders of its securities are or may become liable on account
4 thereof to any assessment, except for taxes. Funds of a stock
5 casualty insurance company shall not be loaned on personal
6 security except for defraying the expenses of an employee
7 transferred or about to be transferred to a new place of
8 employment with the company. Not more than 20% of its capital
9 shall be invested or held in a single mortgage. The company
10 shall not enter into any agreement to withhold from sale any of
11 its property, but the disposition of its property shall be at
12 all times within the control of its board of directors or
13 trustees. If any investment or loan is made or held in a manner
14 not authorized by this section, the officers and directors
15 making or authorizing the investment or loan shall be personally
16 liable for any loss occasioned thereby, and no value as an asset
17 shall be allowed for such an investment or loan.
18 (c) Investments regarding company's building.--Any stock
19 casualty insurance company may invest in the capital stock and
20 obligations of a corporation formed for the purpose of taking
21 and holding title to real estate and erecting or maintaining
22 thereon any building to be used in whole or in part for the
23 accommodation and transaction of the business of the company
24 without being subject to the limitation prescribed in this
25 section as to investment in the stock of a solvent corporation.
26 The insurance company shall not at any time have invested more
27 than 50% of its capital and surplus in investments described in
28 this subsection without the written approval of the
29 commissioner.
30 § 5506. Authorized holdings of real estate.
19850H1962B2642 - 779 -
1 A domestic stock casualty insurance company shall not
2 purchase, hold or convey real estate, except as follows:
3 (1) Real estate which is for the transaction of its
4 business including residential real estate purchased from an
5 employee transferred or about to be transferred to a new
6 place of employment with the company.
7 (2) Real estate which has been conveyed to it in
8 satisfaction of debts previously contracted in the course of
9 its dealings.
10 (3) Real estate which has been purchased at sales upon
11 judgments, decrees or mortgages, obtained or made for debts
12 due the company or for debts due other persons, if the
13 company may have liens or encumbrances on the real estate and
14 the purchase is deemed necessary to save the company from
15 loss.
16 Any real estate acquired under paragraph (2) or (3), which has
17 been held for a period of more than five years from the date of
18 its acquisition, shall be disposed of within a period of six
19 months after notice to the company from the commissioner to do
20 so. The commissioner may extend the time for disposition if the
21 interest of the company will suffer materially by a forced sale.
22 § 5507. Dividends.
23 A stock casualty insurance company shall not make any
24 dividend on its capital except from the profits arising from its
25 business. In estimating the profits, all of the following shall
26 first be charged as a liability:
27 (1) The capital of the company.
28 (2) All unpaid losses or other loss claims.
29 (3) All liabilities for reserve or unearned premiums on
30 undetermined risks as required by law.
19850H1962B2642 - 780 -
1 (4) All sums due the company on bonds, book accounts and
2 judgments on which the interest has not been paid during the
3 last calendar year, or on the principal of which no payment
4 has been made during that period.
5 (5) All other debts or obligations of the company.
6 (6) All shares of stock on which no dividend has been
7 paid during the last calendar year.
8 § 5508. Reduction and withdrawal of capital stock.
9 Any existing stock casualty insurance company and any stock
10 casualty insurance company formed under this title, having a
11 paid-up capital in excess of the minimum required, may reduce
12 the excess, in whole or in part, in the manner provided in
13 section 3558 (relating to reduction of capital stock). Any such
14 company which has undertaken two or more kinds of insurance and
15 wishes to discontinue a particular kind may withdraw the entire
16 additional capital paid in on account thereof.
17 § 5509. Procedure when capital impaired.
18 Any stock casualty insurance company receiving notice from
19 the commissioner that its capital is impaired shall immediately
20 call upon its stockholders for such amounts as will restore its
21 capital to the amount fixed by its charter. If any stockholder
22 fails to pay the amount called for, after notice personally
23 given or by advertisement at the time and in the manner the
24 commissioner approves, the company shall require the return of
25 the original certificates of stock held by the stockholder, or
26 issue new certificates in the proportion as determined by the
27 commissioner, that the ascertained value of the assets of the
28 company bears to the original capital, the company paying for
29 any fractional parts of shares. The directors may create new
30 stock, issue certificates therefor and dispose of this stock at
19850H1962B2642 - 781 -
1 not less than par for an amount sufficient to make up the
2 original capital, or the commissioner may permit the company to
3 reduce its capital and the par value of its shares in proportion
4 to the extent of the impairment, but the capital shall at no
5 time be reduced to an amount less than that required by this
6 title for the organization of the company. In fixing the reduced
7 capital, not more than 50% of the original capital shall be
8 deducted from the assets on hand to be retained as surplus funds
9 nor shall any part of the assets be distributed to stockholders.
10 § 5510. Resident agents for foreign or alien insurance
11 entities.
12 Other than companies subject to section 5901 (relating to
13 resident agents for foreign or alien insurance entities), an
14 authorized foreign or alien insurance entity shall not make,
15 write, place or cause to be made, written or placed, any policy
16 or contract of insurance in this Commonwealth except through an
17 agent. The agent shall be an individual, partnership or
18 corporation who or which is a resident of this Commonwealth or
19 maintains his or its principal place of business in this
20 Commonwealth. The agent shall receive a commission thereon when
21 the premium is paid so that the Commonwealth may receive the
22 taxes required to be paid on the premiums collected for
23 insurance written or placed in this Commonwealth. The
24 commissioner may, under such regulations and restrictions as
25 necessary, issue licenses to nonresident agents who are licensed
26 in the state in which they reside, but these agents shall not
27 countersign any policy or contract of insurance. The policies
28 and contracts shall be signed only by resident agents, who shall
29 receive a commission thereon when the premium is paid.
30 Countersignature shall not be required in the case of policies
19850H1962B2642 - 782 -
1 and contracts set forth in section 3302(a)(1) (relating to
2 authorized classes of insurance) issued by life insurance
3 companies or in the case of bid bonds issued in connection with
4 public or private contracts.
5 SUBCHAPTER B
6 WORKMEN'S COMPENSATION INSURANCE
7 Sec.
8 5521. Policy provisions.
9 5522. Actions for premiums.
10 5523. Rating plans.
11 5524. Annual report of premiums and loss experience.
12 § 5521. Policy provisions.
13 (a) Mandatory policy provisions.--Every policy of insurance
14 against liability under the act of June 2, 1915 (P.L.736,
15 No.338), known as The Pennsylvania Workmen's Compensation Act,
16 or under the act of June 21, 1939 (P.L.566, No.284), known as
17 The Pennsylvania Occupational Disease Act, shall contain the
18 agreement of the insurer:
19 (1) that the insurer shall pay all compensation and
20 provide all medical, surgical and hospital attendance for
21 which the insured employer may become liable under those acts
22 during the term of the insurance; and
23 (2) that, as between the insurer and any claimant under
24 those statutes, notice to the employer or the employer's
25 knowledge of an accident or injury or disability caused by
26 occupational disease constituting the basis of a claim under
27 those acts shall be deemed notice to the insurer.
28 These agreements shall be deemed a direct promise to the injured
29 employee or to the dependents of a deceased employee having a
30 claim under those statutes, and shall be enforceable by action
19850H1962B2642 - 783 -
1 brought in the name of the injured employee or in the name of
2 such dependents. The obligation under this section shall not be
3 affected by any default of the insured, after an accident or
4 after disability caused by occupational disease, in the payment
5 of premiums or in the giving of any notices required by the
6 policy or otherwise.
7 (b) Prohibited policy provisions.--The policy of insurance
8 shall not contain any limitation of the liability of the insurer
9 to an amount less than that for which the insured employer may
10 become liable under the statutes mentioned in subsection (a)
11 during the term of the insurance. A policy or contract of
12 insurance, or an agreement to deliver such insurance, shall not
13 be issued except upon a form approved by the commissioner as
14 complying with this title. However, a policy may be issued to a
15 self-insurer, qualified under section 305 (relating to insurance
16 of payment of compensation by employer) of The Pennsylvania
17 Workmen's Compensation Act or under section 305 (relating to
18 self-insurance) of The Pennsylvania Occupational Disease Act,
19 providing for the payment of any stated loss in excess of
20 $10,000 falling upon the self-insurer, under the terms of those
21 statutes, by reason of any single accident or by reason of any
22 single occurrence resulting in disability from occupational
23 disease. Except for nonpayment of premiums, a policy of
24 insurance issued or renewed against liability under the statutes
25 mentioned in subsection (a) or the Federal Coal Mine Health and
26 Safety Act of 1969 (Public Law 91-173, 30 U.S.C. § 801 et seq.),
27 or insuring an employer against liability of an employer to his
28 employee because of bodily injury by accident or disease,
29 including death resulting therefrom, sustained by the employee
30 arising out of and in the course of his employment, may not be
19850H1962B2642 - 784 -
1 canceled or terminated by an insurer during the term of the
2 policy.
3 § 5522. Actions for premiums.
4 An action shall not be maintained for the collection of
5 premiums upon any policy of insurance under the act of June 2,
6 1915 (P.L.736, No.338), known as The Pennsylvania Workmen's
7 Compensation Act, or under the act of June 21, 1939 (P.L.566,
8 No.284), known as The Pennsylvania Occupational Disease Act,
9 which violates this title. All premiums and interest charges on
10 account of policies insuring employees against liability under
11 this chapter, which are due to the State Workmen's Insurance
12 Fund, or any stock corporation or mutual association authorized
13 to transact the business of insurance in this Commonwealth, and
14 all judgments recovered by the State Workmen's Insurance Fund,
15 or any such insurance corporation or association, against any
16 employer on actions brought under any such policy, shall be
17 deemed preferred claims in all insolvency or bankruptcy
18 proceedings, trustee proceedings for administration of estates,
19 or receiverships, involving the employers liable therefor, or
20 the property of such employer, but claims for wages shall
21 receive prior preference in all such proceedings.
22 § 5523. Rating plans.
23 (a) Preparation of rating plan.--A rating plan shall be
24 proposed annually by one or more rating bureaus, which shall be
25 located in this Commonwealth, subject to supervision and
26 examination by the commissioner and approved by him as
27 adequately equipped to compile rates on an equitable and
28 impartial basis. A schedule or merit rating plan shall be
29 applied only by the approved rating bureau. In the preparation
30 of schedules, an employer shall not be discriminated against or
19850H1962B2642 - 785 -
1 penalized because of physical impairment of any employee or
2 because of the number of dependents of any employee.
3 (b) Approval by commissioner.--The rating plan shall be
4 filed with and shall be subject to review by the commissioner,
5 who shall by order modify, amend or approve it. A rating plan
6 shall not take effect without the consent of the commissioner,
7 and he may withdraw his approval whenever the plan is inadequate
8 or discriminates unfairly between risks of essentially the same
9 hazard. Any person aggrieved by the order may obtain a review
10 thereof before the commissioner.
11 (c) Review of assignment of risk.--The assignment by an
12 approved rating bureau of any individual risk to a particular
13 classification in accordance with a system of classification of
14 risks and underwriting rules approved by the commissioner under
15 this section may be appealed by any person aggrieved by such
16 assignment before the rating bureau in accordance with
17 procedures of the bureau approved by the commissioner. If still
18 aggrieved by the assignment, the person may obtain a further
19 review thereof by filing an appeal with the commissioner within
20 30 days of the mailing date of the final decision of the bureau.
21 The commissioner shall hold a hearing upon not less than ten
22 days' written notice to the applicant and to the rating bureau
23 which made the classification and shall issue an order
24 modifying, amending or approving the placement of the individual
25 risk within the particular classification as the result of that
26 hearing. Any order made by the commissioner under this
27 subsection may be appealed to the Commonwealth Court in
28 accordance with Title 42 (relating to judiciary and judicial
29 procedure).
30 (d) Mandatory use of rating plans.--Neither the State
19850H1962B2642 - 786 -
1 Workmen's Insurance Fund, nor any insurance corporation, mutual
2 association or company, shall issue, renew or carry any policy
3 or contract of insurance against liability under the statutes
4 mentioned in subsection (g), except in accordance with the
5 rating plans proposed by a rating bureau for the risk insured
6 and as modified, amended or approved by the commissioner for
7 such insurer.
8 (e) Special approval.--Notwithstanding any other provisions
9 of this section, upon the written consent of the insured stating
10 his reasons therefor, filed with and approved by the
11 commissioner, a rate in excess of that determined in accordance
12 with the other provisions of this section may be used on any
13 specific risk.
14 (f) Filing of plan.--A complete copy of every policy or a
15 true copy of the substantive provisions of any policy or
16 contract of insurance against liability under the statutes
17 mentioned in subsection (g), and a true copy of every
18 endorsement upon any such policy and of every agreement
19 pertaining thereto, shall be filed with each rating bureau whose
20 rating plan the insurer uses within a reasonable time after the
21 effective date of the policy, endorsement, contract or
22 agreement.
23 (g) Definition.--As used in this section the term "rating
24 plan" means a classification of risks, set of premium rates or
25 underwriting rules of schedule or merit rating plan for
26 insurance of employers and employees under the act of June 2,
27 1915 (P.L.736, No.338), known as The Pennsylvania Workmen's
28 Compensation Act, or under the act of June 21, 1939 (P.L.566,
29 No.284), known as The Pennsylvania Occupational Disease Act, and
30 for insurance with respect to this Commonwealth as to liability
19850H1962B2642 - 787 -
1 under the Longshoremen's and Harbor Workers' Compensation Act
2 (44 Stat. 1424, 33 U.S.C. § 901 et seq.), written as a part of a
3 workmen's compensation and employers' liability policy.
4 § 5524. Annual report of premiums and loss experience.
5 The State Workmen's Insurance Fund, and every insurance
6 company and every employer's mutual liability association which
7 insures employers and employees under the act of June 2, 1915
8 (P.L.736, No.338), known as The Pennsylvania Workmen's
9 Compensation Act, or under the act of June 21, 1939 (P.L.566,
10 No.284), known as The Pennsylvania Occupational Disease Act, or
11 with respect to this Commonwealth under the Longshoremen's and
12 Harbor Workers' Compensation Act (44 Stat. 1424, 33 U.S.C. § 901
13 et seq.), when such liability is insured as a part of a
14 workmen's compensation and employers' liability policy, shall
15 annually, on or before June 30, file with the commissioner a
16 sworn report of its premium and loss experience, in such detail
17 and form as may be prescribed by the commissioner. Any insurance
18 carrier which neglects to timely file the required statement
19 shall pay $100 for each day during which such neglect continues
20 and, upon notice by the commissioner, its authority to do
21 business shall cease while the default continues.
22 SUBCHAPTER C
23 EMPLOYERS' MUTUAL LIABILITY
24 INSURANCE ASSOCIATIONS
25 Sec.
26 5531. Definitions.
27 5532. Examination of premises and books.
28 5533. Rules and regulations.
29 5534. Premiums.
30 5535. Division of subscribers into groups.
19850H1962B2642 - 788 -
1 5536. Powers of commissioner.
2 5537. Dividends.
3 5538. Surplus.
4 5539. Contingent mutual liability of subscribers.
5 5540. Assessments.
6 5541. Withdrawal of subscribers.
7 § 5531. Definitions.
8 The following words and phrases when used in this subchapter
9 shall have the meanings given to them in this section unless the
10 context clearly indicates otherwise:
11 "Association." An incorporated association or company formed
12 by employers for the purpose of insuring themselves, and such
13 other employers as may become subscribers to the association,
14 against liability under Articles II and III of the act of June
15 2, 1915 (P.L.736, No.338), known as The Pennsylvania Workmen's
16 Compensation Act.
17 "Board of directors." The board of directors of an
18 association.
19 "Subscriber." A subscriber to an association.
20 § 5532. Examination of premises and books.
21 The board of directors may inspect the premises of any
22 subscriber, and may appoint inspectors for that purpose, who
23 shall have free access to the premises during the regular
24 working hours. The board of directors may, from time to time,
25 examine, by their auditor or other agent, the books and records
26 of any subscriber for the purpose of determining the amount of
27 premium chargeable to the subscriber.
28 § 5533. Rules and regulations.
29 The board of directors shall make reasonable rules and
30 regulations for the prevention of injuries upon the premises of
19850H1962B2642 - 789 -
1 subscribers and may refuse to insure or may terminate the
2 insurance of any subscriber who refuses to permit examination or
3 violates the rules and regulations and may forfeit one-half of
4 the unearned premiums previously paid by him. The termination of
5 the insurance of any subscriber shall not release him from
6 liability for the payment of assessments made by the board of
7 directors to make up deficiencies existing at the termination of
8 his insurance.
9 § 5534. Premiums.
10 (a) Criteria for determining amount.--The board of directors
11 shall determine the amount of the premiums which the subscribers
12 shall pay for their insurance, in accordance with the nature of
13 the business in which the subscribers are engaged and the
14 probably risk of injury to their employees under existing
15 conditions. In fixing the premium payable by any subscriber, the
16 board of directors may take into account the condition of the
17 property of the subscriber, in respect to the safety of those
18 employed therein as shown by the report of any inspector
19 appointed by the board. Subject to the approval of the
20 commissioner, they shall fix each premium at an amount
21 sufficient to enable the association to create and maintain the
22 surplus required under section 5538 (relating to surplus), to
23 pay to its subscribers all sums which may become due and payable
24 to their employees under Article III of the act of June 2, 1915
25 (P.L.736, No.338), known as The Pennsylvania Workmen's
26 Compensation Act, and to defray the expenses of conducting the
27 business of the association.
28 (b) Change in premium.--The board of directors may change
29 the amount of premiums payable by any of the subscribers as
30 circumstances may permit or require. The board may increase the
19850H1962B2642 - 790 -
1 premiums of any subscriber who neglects to provide safety
2 devices required by law or violates the rules or regulations
3 made by the board of directors in accordance with section 5533
4 (relating to rules and regulations).
5 (c) Effectiveness of policy.--A policy of insurance issued
6 to any subscriber shall not be effective until he has paid the
7 initial premium.
8 § 5535. Division of subscribers into groups.
9 The board of directors may divide the subscribers into
10 groups, in accordance with the nature of their business and the
11 probably risks of injury therein. The board shall fix all
12 premiums for each business in the group and for the various
13 classes of employment therein, in accordance with the probable
14 risks of injury to the employees in such business and in each
15 class of employment therein. The board shall make all
16 assessments and determine and pay all dividends by and for each
17 group in accordance with its experience. All funds of the
18 association and the contingent liability of the subscribers
19 shall be available for the payment of any claim against the
20 association, but as between the association and its subscribers
21 until the whole of the contingent liability of the members of
22 any group is exhausted, the general funds of the association and
23 the contingent liability of the members of other groups shall
24 not be available for the payment of losses and expenses incurred
25 by that group in excess of the earned premiums paid by its
26 members.
27 § 5536. Powers of commissioner.
28 Every association shall file a statement with the department
29 of any proposed premium, assessment, dividend or distribution of
30 subscribers into groups. A proposed change shall not take effect
19850H1962B2642 - 791 -
1 until approved by the commissioner.
2 § 5537. Dividends.
3 The board of directors may, from time to time, fix and
4 determine the amount to be paid as dividends upon policies
5 expiring each year, after retaining the unearned premiums upon
6 undetermined risks, sufficient sums to pay all the compensation
7 then payable or which may become payable on account of injuries
8 received by employees of the subscribers and to pay the expenses
9 incurred in the operation of the business of the association,
10 and such percentage of the premiums as has been paid or is
11 payable to create and maintain the surplus provided in section
12 5538 (relating to surplus).
13 § 5538. Surplus.
14 The board of directors may set aside such part of all
15 premiums collected as it deems necessary for the creation of an
16 adequate surplus to cover catastrophic losses to the subscribers
17 to the fund and to guarantee the solvency of the fund.
18 § 5539. Contingent mutual liability of subscribers.
19 Every subscriber shall be under a contingent mutual liability
20 for the payment of losses and expenses in excess of the cash
21 funds of the association to an amount at least equal to the
22 premium paid by him during the current year.
23 § 5540. Assessments.
24 If any association does not possess cash funds over and above
25 its unearned premiums on undetermined risks, sufficient for the
26 payment of incurred losses and expenses, it shall make an
27 assessment for the amount needed to pay such losses and expenses
28 upon the subscribers liable to assessment therefor, in
29 proportion to their several liabilities.
30 § 5541. Withdrawal of subscribers.
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1 Any subscriber who has complied with all of its rules and
2 regulations may withdraw therefrom by written notice to that
3 effect, sent by the subscriber by registered mail to the
4 association. The withdrawal shall become effective on the first
5 day of the month immediately following the tenth day after the
6 receipt of the notice. Such withdrawal shall not release the
7 subscriber from liability for the payment of assessments
8 thereafter made by the board of directors to make up
9 deficiencies existing at the date of his withdrawal, if the
10 assessment is made within one calendar year from the date of
11 withdrawal. The subscriber may receive his share of any dividend
12 earned at the date of his withdrawal.
13 SUBCHAPTER D
14 ARSON REPORTING IMMUNITY
15 Sec.
16 5551. Short title of subchapter.
17 5552. Definitions.
18 5553. Disclosure of information.
19 5554. Immunity.
20 5555. Evidence.
21 5556. Penalty.
22 5557. Construction of subchapter.
23 5558. Regulations.
24 § 5551. Short title of subchapter.
25 This subchapter shall be known and may be cited as the Arson
26 Reporting Immunity Act.
27 § 5552. Definitions.
28 The following words and phrases when used in this subchapter
29 shall have the meanings given to them in this section unless the
30 context clearly indicates otherwise:
19850H1962B2642 - 793 -
1 "Action." Includes nonaction or the failure to take action.
2 "Authorized agencies."
3 (1) Includes:
4 (i) The Pennsylvania State Police Commissioner and
5 other police officers charged with the investigation of
6 fires at the place where the fire actually took place.
7 (ii) The fire commissioner or fire chief of all
8 cities.
9 (iii) The Attorney General.
10 (iv) The prosecuting attorney responsible for
11 prosecutions in the county where the fire occurred.
12 (v) The Federal Bureau of Investigation.
13 (vi) The Federal Bureau of Alcohol, Tobacco and
14 Firearms.
15 (vii) The United States Attorney when authorized or
16 charged with investigation or prosecution of the fire in
17 question.
18 (viii) The Bureau of Forestry of the Department of
19 Environmental Resources.
20 (2) Solely for the purposes of section 5553(b) (relating
21 to disclosure of information), an appropriate authorized
22 agency is:
23 (i) the Pennsylvania State Police Commissioner or
24 his authorized representative; or
25 (ii) the fire commissioner or fire chief of all
26 cities and the fire chief of any other municipality with
27 a paid fire department when that municipality is not
28 serviced by the Pennsylvania State Police Commissioner or
29 his authorized representative for the purpose of
30 investigating fires.
19850H1962B2642 - 794 -
1 "Fire loss." Includes loss by explosion.
2 "Insurance company." Any insurance company authorized to
3 transact the business of insurance in this Commonwealth and
4 empowered to issue policies of insurance against loss by the
5 perils of fire or explosion, including the fair plan created
6 under Chapter 57 (relating to Pennsylvania Fair Plan).
7 "Relevant." Any information having a tendency to make the
8 existence of any fact that is of consequence to the
9 investigation or determination of the issue more or less
10 probable than it would be without the information.
11 § 5553. Disclosure of information.
12 (a) Fire loss information.--Any authorized agency may, in
13 writing, require any insurance company at interest to release to
14 the agency any or all relevant information or evidence deemed
15 important to the agency which the insurance company may have in
16 its possession relating to a fire loss under investigation by
17 the agency. Relevant information may include, but shall not be
18 limited to, any of the following:
19 (1) Pertinent policy information relevant to a fire loss
20 under investigation, including any application for such a
21 policy.
22 (2) Underwriting information or risk inspection reports.
23 (3) Policy premium payment records.
24 (4) History of previous claims made by the insured.
25 (5) Material relating to the investigation of the loss,
26 including statements of any person, and proof of loss.
27 (b) Notification for investigation.--Whenever the
28 investigation of a fire loss by an insurance company insuring
29 the loss indicates that the probable cause of the fire loss was
30 arson, the company shall notify, in writing, the appropriate
19850H1962B2642 - 795 -
1 authorized agency. Upon the request of any authorized agency,
2 the insurance company shall provide the agency with such fire
3 loss information developed from the company's inquiry into the
4 fire loss as may be requested by the agency. The insurance
5 company may provide to any authorized agency any information it
6 has relating to a fire loss. This subsection does not abrogate
7 or impair any rights or duties created under subsection (a).
8 (c) Notification to policyholder.--When information is given
9 by any insurance company to an authorized agency under
10 subsection (a) or (b):
11 (1) The insurance company shall send written notice to
12 the policyholders about whom the information pertains, unless
13 the insurance company receives notice that the authorized
14 agency finds, based on specific facts, that there is reason
15 to believe that such information will result in any of the
16 following:
17 (i) Endangerment of the life or physical safety of
18 any person.
19 (ii) Flight from prosecution.
20 (iii) Destruction of or tampering with evidence.
21 (iv) Intimidation of any potential witness.
22 (v) Obstruction of or seriously jeopardizing an
23 investigation.
24 (2) The insurance company shall send written notice not
25 less than 45 nor more than 60 days from the time the
26 information is furnished to an authorized agency, except when
27 the agency specifies that a notice should not be sent in
28 accordance with the exceptions under paragraph (1), in which
29 event the insurance company shall send written notice to the
30 policyholder not less than 180 days nor more than 190 days
19850H1962B2642 - 796 -
1 after the information is furnished to an authorized agency.
2 (3) Every insurance company or authorized agency and any
3 person acting on behalf of either, complying with or
4 attempting in good faith to comply with paragraphs (1) and
5 (2), shall be absolutely immune from any civil liability
6 arising out of any acts or omissions in so doing. This
7 subsection does not create any additional rights to privacy
8 or causes of action on behalf of policyholders.
9 (d) Release of information.--An authorized agency that is
10 provided with information under subsection (a) or (b) may in
11 good faith release or provide orally or in writing such
12 information as it possesses in whole or in part to any other
13 authorized agency or insurance company in furtherance of the
14 agency's own investigative purposes.
15 § 5554. Immunity.
16 Any insurance company or person designated to act in its
17 behalf, or any authorized agency or person authorized to act on
18 its behalf, who without actual malice releases oral or written
19 information under section 5553(a), (b) or (d) (relating to
20 disclosure of information) shall be immune from liability
21 arising out of a civil action and from criminal prosecution with
22 respect to the release of the information.
23 § 5555. Evidence.
24 Except as provided in section 5553(d) (relating to disclosure
25 of information), any authorized agency or insurance company who
26 receives any information furnished pursuant to this subchapter
27 shall hold the information in strict confidence until such time
28 as its release is required pursuant to a criminal or civil
29 proceeding.
30 § 5556. Penalty.
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1 (a) Disclosure of information.--Any person who fails or
2 refuses to release any information required to be released under
3 this subchapter or who discloses information required to be held
4 in confidence, or who otherwise violates any provision of this
5 subchapter, except section 5553(c)(1) and (2) (relating to
6 disclosure of information), commits a misdemeanor or the third
7 degree.
8 (b) Immunity from liability.--Any person who releases or
9 discloses information required to be held in confidence pursuant
10 to section 5555 (relating to evidence), other than as provided
11 under section 5553(a), (b) or (d), shall not be afforded
12 immunity under section 5554 (relating to immunity).
13 § 5557. Construction of subchapter.
14 (a) Municipal ordinances.--This subchapter does not affect
15 or repeal any ordinances of any municipality relating to fire
16 prevention or the control of arson.
17 (b) Impairment of rights not intended.--With the exception
18 of section 5554 (relating to immunity), this subchapter does not
19 impair any existing statutory or common law rights, powers or
20 duties.
21 § 5558. Regulations.
22 The Pennsylvania State Police Commissioner may promulgate
23 such regulations concerning the implementation of section
24 5553(d) (relating to disclosure of information) as he deems
25 necessary. The commissioner may promulgate regulations
26 concerning the implementation of this subchapter except for
27 section 5553(d).
28 SUBCHAPTER E
29 ANTI-ARSON APPLICATIONS
30 Sec.
19850H1962B2642 - 798 -
1 5561. Short title of subchapter.
2 5562. Purpose of subchapter.
3 5563. Definitions.
4 5564. Applicability of subchapter.
5 5565. Form of anti-arson applications.
6 5566. Insurability.
7 5567. Requirement and effect of anti-arson applications.
8 5568. Alternative anti-arson applications.
9 5569. Termination of insurance policies or contracts.
10 5570. Penalties.
11 5571. Advisory board.
12 § 5561. Short title of subchapter.
13 This subchapter shall be known and may be cited as the Anti-
14 Arson Application Law.
15 § 5562. Purpose of subchapter.
16 The purpose of this subchapter is to promote the public
17 welfare by reducing the loss of life and fire damage to property
18 caused by the crime of arson by requiring insurance companies to
19 secure anti-arson applications from applicants for new policies
20 of property insurance containing information to control the
21 incidence of arson fraud.
22 § 5563. Definitions.
23 The following words and phrases when used in this subchapter
24 shall have the meanings given to them in this section unless the
25 context clearly indicates otherwise:
26 "Anti-arson application." Any application for insurance
27 covering the peril of fire that includes certain questions to be
28 answered by the applicant in addition to the basic information
29 normally supplied to an insurer by an applicant.
30 "Commercial monoline fire policy." An insurance policy on a
19850H1962B2642 - 799 -
1 commercial or industrial premise in which coverage is limited to
2 the perils of:
3 (1) fire, lightning or removal as contained in the
4 standard fire policy in section 5906 (relating to provisions
5 of fire insurance policies); or
6 (2) the coverage described in paragraph (1) and extended
7 coverage, including windstorm or hail, smoke, explosion, riot
8 or civil commotion, aircraft and vehicle, vandalism or
9 malicious mischief.
10 The term does not include any package policy or multiperil
11 policy which provides coverage of other perils such as, but not
12 limited to, coverage of bodily injury or property damage
13 liability.
14 "Insurance policy" or "contract of insurance." Any written
15 evidence of new insurance providing coverage from the peril of
16 fire written or entered into on or after March 7, 1983, or any
17 assignment of an existing insurance policy or contract which
18 occurs because of the transfer of a major financial interest in
19 the insured real property. Except for those assignments, the
20 term does not include any property insurance policy in force
21 before March 7, 1983, or the renewal of a contract of insurance
22 in force before March 7, 1983.
23 "Renewal." The issuance and delivery by an insurer of a
24 policy superseding at the end of the policy period a policy
25 previously issued and delivered by the same insurer, providing
26 types and limits of coverage at least equal to those contained
27 in the policy being superseded, or the issuance and delivery of
28 a certificate or notice extending the term of a policy beyond
29 its policy period or term with types and limits of coverage at
30 least equal to those contained in the policy being extended. Any
19850H1962B2642 - 800 -
1 policy with a policy period or term of less than 12 months or
2 any period with no fixed expiration date shall be considered as
3 if written for successive policy periods or terms of 12 months.
4 § 5564. Applicability of subchapter.
5 Anti-arson applications shall be used for commercial monoline
6 fire policies, designated occupancies and designated areas of
7 this Commonwealth, upon a finding by the commissioner, after a
8 public hearing in a location or municipality to be included in a
9 designated area, that commercial monoline fire policies, the
10 designated occupancies and the areas of this Commonwealth have
11 an abnormally high incidence of arson. Hearings pursuant to this
12 section shall be held under the act of July 19, 1974 (P.L.486,
13 No.175), referred to as the Public Agency Open Meeting Law.
14 § 5565. Form of anti-arson applications.
15 (a) Two-tier applications.--The commissioner, in
16 promulgating the anti-arson application form, shall consider
17 generally recognized two-tier application forms. If the initial
18 first-tier application elicits certain predesignated answers,
19 then the second-tier supplementary application shall be
20 administered.
21 (b) Contents.--The two-tiered application shall secure the
22 disclosure of all of the following information:
23 (1) The name and address of the applicant, any
24 mortgagees and any other parties who have an ownership
25 interest in the property.
26 (2) The amount of insurance requested and the method of
27 valuation used to establish the amount of insurance.
28 (3) The dates and selling prices of the property in all
29 real estate transactions involving the property during the
30 last three years.
19850H1962B2642 - 801 -
1 (4) The applicant's loss history over the last five
2 years with regard to any property in which he held an equity
3 interest or a mortgage and where any such loss exceeded
4 $1,000 in damages.
5 (5) All taxes unpaid or overdue for one or more years
6 and any mortgage payments overdue by three months or more.
7 (6) All known current violations of fire, safety,
8 health, building or construction codes on the property to be
9 insured.
10 (7) The present occupancy of the structure.
11 (8) Such other information as the commissioner deems
12 necessary.
13 (c) Form of validation.--An anti-arson application shall
14 contain the following language:
15 I (We) certify that all information contained herein is
16 true and correct to the best of my (our) knowledge and
17 belief. Signed under penalty of perjury.
18 (d) Excluded property.--If a commercial, designated
19 occupancy or designated area property subject to this subchapter
20 is insured in a contract of insurance which includes other
21 properties which are not subject to section 5564 (relating to
22 applicability of subchapter), the information required in this
23 section shall only be the information applicable to the property
24 subject to this subchapter.
25 § 5566. Insurability.
26 Designation of any area of this Commonwealth under section
27 5564 (relating to applicability of subchapter) shall not be
28 deemed a valid reason for refusal to write, termination or
29 nonrenewal of any policy or contract of insurance.
30 § 5567. Requirement and effect of anti-arson applications.
19850H1962B2642 - 802 -
1 (a) Use of anti-arson application.--An insurer may not enter
2 into a permanent contract to insure any building, except one to
3 four family owner-occupied dwellings, against the peril of fire
4 to be issued after March 7, 1983, unless the insurer first
5 receives an anti-arson application signed and affirmed by the
6 insured, if required by the commissioner under this subchapter.
7 This subsection does not prohibit the issuance of a binder or
8 other temporary contract of insurance for a period of 90 days or
9 less, provided that the anti-arson application is provided to
10 the insured for completion in accordance with this section.
11 (b) Effect.--Any anti-arson application required by this
12 subchapter shall be deemed a material part of the insurance
13 policy to which the application pertains. A material
14 misrepresentation shall be deemed grounds to void the insurance
15 policy.
16 (c) Notice of changes.--Policyholders shall notify their
17 insurer in writing of any change in the information contained in
18 the anti-arson application, within a period of time to be
19 specified by the commissioner. A material failure to notify or a
20 material misrepresentation in such notification shall be deemed
21 grounds to void the insurance policy.
22 § 5568. Alternative anti-arson applications.
23 (a) Power of commissioner.--The commissioner may mandate
24 alternative anti-arson applications pursuant to findings, after
25 a public hearing, that:
26 (1) there exist certain types of policies, certain
27 classes of property and certain geographic areas of this
28 Commonwealth which have an abnormally high incidence of
29 arson;
30 (2) the anti-arson application was implemented as
19850H1962B2642 - 803 -
1 respects those types of insurance policies, classes of
2 property and areas of this Commonwealth under this
3 subchapter; and
4 (3) the use of the anti-arson application under this
5 subchapter failed to substantially decrease the arson problem
6 for those types of insurance policies, classes of property
7 and geographic areas.
8 (b) Limitations.--The commissioner shall not mandate the use
9 of any applications other than the anti-arson application for
10 the purpose of advancing the policy set forth in section 5562
11 (relating to purpose of subchapter). Alternative anti-arson
12 applications may only be mandated for the types of insurance
13 policies, types of occupancies and the areas of this
14 Commonwealth which would be permissible subjects for the anti-
15 arson application under this subchapter.
16 § 5569. Termination of insurance policies or contracts.
17 Notwithstanding any other provision of law which limits the
18 time for termination of insurance policies, an insurer may
19 terminate for any lawful reason any policy or contract of
20 insurance where the anti-arson application or any alternative
21 anti-arson application is required within 90 days from the
22 insurer's acceptance of the application. The notice of
23 cancellation to the insured shall contain the specific reasons
24 for the termination of the policy.
25 § 5570. Penalties.
26 (a) Civil penalty.--Any insurer willfully violating this
27 subchapter shall be subject to a civil penalty imposed by the
28 commissioner of not more than $10,000.
29 (b) Criminal penalty.--Any insurer violating section 5567
30 (relating to requirement and effect of anti-arson applications)
19850H1962B2642 - 804 -
1 commits a misdemeanor of the first degree.
2 § 5571. Advisory board.
3 (a) Establishment.--The commissioner may establish an
4 advisory board of public and private representatives, which
5 shall consist of the commissioner as chairman and two lay
6 people, two members of the insurance industry, two municipal
7 officials and two members of the General Assembly, one of which
8 shall be appointed by the Speaker of the House of
9 Representatives and one of which shall be appointed by the
10 President pro tempore of the Senate, to assist him in
11 administering this subchapter and in studying and implementing
12 any other measures to prevent arson.
13 (b) Expenses.--Each member of the advisory board shall
14 receive $40 per diem for each day actually engaged in attendance
15 at meetings of the board. The members shall also receive the
16 amount of actual traveling, hotel and other necessary expenses
17 incurred in the performance of their duties.
18 (c) Expiration.--The advisory board established by
19 subsection (a) shall expire and its authority shall cease on
20 March 7, 1987, unless extended by statute.
21 SUBCHAPTER F
22 MISCELLANEOUS PROVISIONS
23 Sec.
24 5581. Companies providing boiler insurance.
25 5582. Boiler insurance in cities of the first class.
26 5583. Insurance consultation services exemption.
27 § 5581. Companies providing boiler insurance.
28 Domestic companies or companies doing business in this
29 Commonwealth with power to insure against loss by the explosion
30 of steam boilers may insure all loss or damage which the owner
19850H1962B2642 - 805 -
1 or owners of the boiler, or their employees or other persons,
2 may suffer or be liable for in case of an explosion of the
3 boilers mentioned in any policy of insurance issued by the
4 company for the amount specified therein.
5 § 5582. Boiler insurance in cities of the first class.
6 (a) General rule.--Any steam boiler insurance company which
7 has complied with the law of this Commonwealth relative to
8 insurance companies shall be authorized to inspect and insure
9 boilers in all cities of the first class under this section.
10 (b) Interest in manufacture of steam boilers.--Neither the
11 insurance company nor its executive officers shall, directly or
12 indirectly, be interested in the manufacture or sale of steam
13 boilers or of any of the appliances connected with steam engines
14 and boilers.
15 (c) Oath of boiler inspectors.--The insurance company shall
16 employ skillful and competent persons for the inspection of
17 steam boilers who, before entering upon their duties, shall
18 swear that they will not accept for the performance of their
19 duties any money, gift, gratuity or consideration from any
20 person or persons, other than the insurance company which
21 employs them, and that they will not, directly or indirectly, be
22 interested in the manufacture or sale of steam boilers or of any
23 of the appliances connected with steam engines and boilers.
24 (d) Requirement of inspection.--A policy of insurance
25 described in subsection (a) shall not be for a longer period
26 than three years and shall not be effected until the boiler has
27 been inspected and tested, and its inspection, test, condition,
28 attachments and indicators have been found to conform to the
29 provisions of the city ordinances regarding the inspection of
30 steam engines and boilers. The details of this inspection, test,
19850H1962B2642 - 806 -
1 attachments and indicators shall be furnished the city inspector
2 in the required form.
3 (e) Minimum premium.--A policy of insurance described in
4 subsection (a) shall not be valid unless the premium upon the
5 policy, including a fee paid to the city inspector under this
6 section, shall be at least one and one-half times the charges
7 prescribed by the city ordinance for the inspection of steam
8 boilers. The policy shall not be canceled or modified so that
9 the premium is less than the amount provided under this
10 subsection without notifying the city inspector immediately in
11 writing with the reasons therefor.
12 (f) Issuance of certificate of inspection.--Whenever the
13 insurance company inspects a boiler and issues a policy of
14 insurance covering it, the company shall issue a certificate of
15 inspection, which shall set forth that the inspection, tests,
16 attachments and indicators have been found to be in accordance
17 with the requirements of the city ordinances. The certificate
18 shall also state the pressure, in pounds, to which each boiler
19 has been subjected in testing, together with the amount of
20 pressure the user is authorized to carry within the boiler, in
21 accordance with the city ordinances. It shall further state that
22 the boiler inspected has been insured by the company, and that
23 the holder of the certificate is required to maintain it in a
24 conspicuous place near the boiler to which it refers.
25 (g) Cancellation of modification of policy.--If the
26 insurance company cancels a policy of insurance issued in
27 accordance with this section, or modifies the policy so that the
28 premium is less than the amount provided under subsection (e),
29 the cancellation or modification shall render the certificate of
30 inspection upon each boiler affected invalid, and notice of the
19850H1962B2642 - 807 -
1 cancellation shall be communicated to the city inspector
2 immediately.
3 (h) Form and effect of certificate.--The inspector of steam
4 engines and boilers in cities of the first class shall furnish
5 all steam boiler insurance companies or their agents with
6 printed forms for recording the details of inspection, similar
7 to those furnished to his own assistants. The inspector shall
8 also furnish the companies with a form of certificate setting
9 forth that the premium upon the policy of insurance to be issued
10 in connection with the certificate of inspection equals or
11 exceeds the amount provided under subsection (e). He shall
12 record the forms and certificates as provided for in the city
13 ordinance and shall affix his signature and official seal to the
14 certificate of inspection of the insurance companies if the
15 inspection shows that the requirements of the city ordinances
16 relative to boiler inspections have been complied with, and that
17 the company has complied with this section. The inspector of
18 steam engines and boilers in any city of the first class shall
19 receive for such approval $1 for each boiler, which shall be
20 paid into the city treasury, but the approval shall not be
21 effective for a longer period than one year from the date
22 thereof.
23 (i) Notice of withdrawal of certificate.--When the inspector
24 withholds or withdraws a certificate of inspection, by reason of
25 the incompetence or unreliability of the engineer, under this
26 section and the city ordinance for the inspection of steam
27 boilers, or whenever he considers the boiler unsafe, he shall
28 give the user of the boiler and the insurance company issuing
29 the policy thereon written notice thereof. The notice shall
30 contain a statement of the reasons for the action. The notice
19850H1962B2642 - 808 -
1 shall be equivalent to the removal of the certificate. The
2 withdrawal of the certificate shall render void the policy of
3 insurance upon the boilers to which the certificate had
4 reference.
5 (j) Penalty.--Any inspector of an insurance company who aids
6 in procuring insurance of any stationary steam engine or boiler
7 which does not comply with the conditions, or stand the test
8 provided for in the ordinance of a city of the first class
9 relative to boiler inspection, or which is not provided with the
10 attachments and indicators required by the ordinance, or
11 knowingly permits insurance to continue upon any stationary
12 steam engine or boiler in a city of the first class not provided
13 with such attachments and indicators, commits a misdemeanor of
14 the second degree.
15 § 5583. Insurance consultation services exemption.
16 (a) Short title.--This section shall be known and may be
17 cited as the Insurance Consultation Services Exemption Act.
18 (b) Exemption from civil liability.--The furnishing, or
19 failure to furnish, insurance consultation services shall not
20 subject the insurer, its agents, employees or service
21 contractors to liability for damages from injury, death or loss
22 occurring as a result of any act or omission by any person in
23 the course of such services.
24 (c) Applicability.--This subsection does not apply:
25 (1) If the injury, loss or death occurred during the
26 actual performance of consultation services and was caused by
27 the negligence of the insurer, its agent, employees or
28 service contractors which was a proximate cause of the
29 injury, death or loss.
30 (2) To any consultation services required to be
19850H1962B2642 - 809 -
1 performed under the provisions of a written service contract
2 not incidental to a policy of insurance.
3 (3) In any action against any insurer, its agents,
4 employees or service contractors for damages caused by the
5 act or omission of such persons in which it is judicially
6 determined that the act or omission constituted a crime or
7 was accompanied by actual malice or gross negligence.
8 (4) If the insurer fails to furnish the insured with
9 written notice of the provisions of this section. The notice
10 shall be provided the insured by the insurer at the time the
11 policy is issued or written and at each renewal thereof. The
12 manner in which the notice shall be given and its specific
13 contents shall be approved by the commissioner.
14 (5) To the immunities and protections provided by
15 section 305 (relating to insurance of payment of compensation
16 by employer) of the act of June 2, 1915 (P.L.736, No.338),
17 known as The Pennsylvania Workmen's Compensation Act.
18 (d) Definitions.--As used in this section the following
19 words and phrases shall have the meanings given to them in this
20 subsection:
21 "Insurance consultation service." Any survey, consultation,
22 inspection, advisory or related services performed by an
23 insurer, its agents, employees or service contractors incident
24 to an application for property or casualty insurance or a policy
25 of such insurance for the purpose of reducing the likelihood of
26 injury, death or loss.
27 "Insurer." Any authorized property or casualty insurance
28 company.
29 CHAPTER 57
30 PENNSYLVANIA FAIR PLAN
19850H1962B2642 - 810 -
1 Subchapter
2 A. General Provisions
3 B. Structure of Fair Plan
4 C. Pennsylvania Civil Disorder Authority
5 D. Basic Property Insurance Assessment
6 SUBCHAPTER A
7 GENERAL PROVISIONS
8 Sec.
9 5701. Short title of chapter.
10 5702. Purposes of chapter.
11 5703. Definitions.
12 § 5701. Short title of chapter.
13 This chapter shall be known and may be cited as the
14 Pennsylvania Fair Plan Act.
15 § 5702. Purposes of chapter.
16 The purposes of this chapter are to:
17 (1) Encourage stability in the property insurance market
18 for property located in urban areas of this Commonwealth.
19 (2) Encourage maximum use in obtaining basic property
20 insurance of the normal insurance market provided by the
21 private property insurance industry.
22 (3) Encourage the improvement of the condition of
23 properties located in urban areas of this Commonwealth and to
24 further orderly community development generally.
25 (4) Provide for the formulation and administration by an
26 industry placement facility of a fair plan in order that no
27 property shall be denied basic property insurance through the
28 normal insurance market provided by the private property
29 insurance industry except after a physical inspection of the
30 property and a fair evaluation of its individual underwriting
19850H1962B2642 - 811 -
1 characteristics.
2 (5) Publicize the purposes and procedures of the fair
3 plan so that no one may fail to seek its assistance through
4 ignorance thereof.
5 (6) Provide for the formulation and administration by
6 the industry placement facility of a reinsurance arrangement
7 whereby property insurers shall share equitably the
8 responsibility for insuring insurable property for which
9 basic property insurance cannot be obtained through the
10 normal insurance market.
11 (7) Provide a framework for participation by the
12 Commonwealth in a sharing of insured losses resulting from
13 riots and other civil disorders occurring in this
14 Commonwealth through the formation of a Pennsylvania Civil
15 Disorder Authority, in order that insurance companies doing
16 business in this Commonwealth may qualify for Federal
17 reinsurance of such losses if Federal legislation providing
18 for reinsurance is enacted.
19 § 5703. Definitions.
20 The following words and phrases when used in this chapter
21 shall have the meanings given to them in this section unless the
22 context clearly indicates otherwise:
23 "Basic property insurance." Insurance against direct loss to
24 real or tangible personal property at a fixed location caused by
25 perils defined and limited in the standard fire policy
26 prescribed in section 5906 (relating to provisions of fire
27 insurance policies) and in the extended coverage endorsement
28 approved by the commissioner under section 3515 (relating to
29 approval of contracts by commissioner) and vandalism, malicious
30 mischief, burglary, theft or other classes of insurance as are
19850H1962B2642 - 812 -
1 determined by the industry placement facility with the approval
2 of the commissioner. The term does not include insurance on a
3 motor vehicle or farm or such manufacturing risks as are
4 excluded by the commissioner.
5 "Fair plan." A plan formulated by the industry placement
6 facility under the authority of this chapter for the purposes
7 set forth in 5711(b) (relating to industry placement facility).
8 "Federal reinsurance facility." Any agency, or
9 instrumentality thereof, or any body corporate created by the
10 Federal Government for the purpose of providing reinsurance for
11 losses resulting from riots and other civil disorders.
12 "Government." The Federal Government and the government of
13 the Commonwealth, or any agency or instrumentality, corporate or
14 otherwise, of either of them.
15 "Inspection bureau." The organization or organizations
16 designated by the industry placement facility with the approval
17 of the commissioner to inspect and to determine the condition of
18 the properties for which basic property insurance is sought.
19 "Insurer." Any insurance company or group of companies under
20 common ownership which is authorized to engage in the insurance
21 business under the law of any state, including any pool or
22 association of insurance companies formed, associated or
23 otherwise created for the purpose of sharing risks written in
24 accordance with this chapter.
25 "Premiums written." Gross direct premiums charged on all
26 policies of basic property insurance and the basic property
27 insurance components of all multiple peril policies covering
28 property in this Commonwealth, less all premiums and dividends
29 returned to policyholders and the unused or unabsorbed portions
30 of premium deposits.
19850H1962B2642 - 813 -
1 "Urban area." Any municipal corporation having a blighted,
2 deteriorated or deteriorating area which the Secretary of the
3 Federal Department of Housing and Urban Development has approved
4 as eligible for an urban renewal project or which has been
5 designated as an urban area by the industry placement facility
6 with the approval of the commissioner.
7 SUBCHAPTER B
8 STRUCTURE OF FAIR PLAN
9 Sec.
10 5711. Industry placement facility.
11 5712. Fair plan.
12 5713. Distribution of risks.
13 5714. Uninsurable risks.
14 5715. Regulation by commissioner.
15 5716. Annual and other statements.
16 5717. Privileged communications.
17 5718. Review.
18 § 5711. Industry placement facility.
19 (a) Membership.--Each insurer which is authorized to write
20 and is engaged in writing in this Commonwealth, on a direct
21 basis, basic property insurance or any component thereof
22 contained in a multiple peril policy, including homeowners and
23 commercial multiple peril policies, shall participate in the
24 industry placement facility as a condition of its authority to
25 write those kinds of insurance in this Commonwealth. Other
26 insurers may become members if they are eligible surplus lines
27 insurers under section 1307 (relating to eligible surplus lines
28 insurers).
29 (b) Purposes.--The purposes of the facility shall be to:
30 (1) Formulate and administer, subject to the approval of
19850H1962B2642 - 814 -
1 the commissioner, a plan to be known as the fair plan
2 assuring fair access to insurance requirements in order that
3 no property in urban areas shall be denied basic property
4 insurance through the normal insurance market provided by the
5 private property insurance industry, except after a physical
6 inspection of the property and a fair evaluation of its
7 individual underwriting characteristics.
8 (2) Formulate and administer, subject to the approval of
9 the commissioner, a reinsurance arrangement whereby the
10 members of the facility shall share equitably the
11 responsibility for insuring property in urban areas which is
12 insurable, but for which basic property insurance cannot be
13 obtained through the normal insurance market.
14 (c) Plan of operation.--The industry placement facility
15 shall operate under a plan of operation of the facility,
16 consistent with the provisions of this chapter and the purposes
17 of the facility, which shall provide for the fair plan, the
18 reinsurance arrangement and the economical and efficient
19 administration of the facility, including, but not limited to,
20 management of the facility, preliminary assessment of all
21 members for initial expenses necessary to commence operations,
22 establishment of necessary facilities in this Commonwealth,
23 assessment of members to defray losses and expenses, commission
24 arrangements, reasonable underwriting standards and limits of
25 liability, acceptance and cession of reinsurance and procedures
26 for determining amounts of insurance to be provided. The plan of
27 operation shall be the plan approved by the commissioner under
28 the former section 201(c) (relating to industry placement
29 facility) of the act of July 31, 1968 (P.L.738, No. 233), known
30 as the Pennsylvania Fair Plan Act or under subsection (d).
19850H1962B2642 - 815 -
1 (d) Amendment of plan of operation.--At the direction of the
2 commissioner, the facility shall amend the plan of operation,
3 and the facility may amend the plan of operation subject to the
4 approval of the commissioner.
5 (e) Organization of facility.--The facility shall be
6 governed by a board of seven directors elected annually by the
7 members of the facility. Each member of the facility shall be
8 allotted votes bearing the same ratio to the total number of
9 votes to be cast as its degree of participation in the facility
10 bears to the total participation. Pending the determination of
11 the degree of participation of the members in the facility, each
12 member of the facility shall be allotted votes bearing the same
13 ratio to the total number of votes to be cast as each member's
14 written premium on basic property insurance during calendar year
15 1967 bears to the statewide total written premium for basic
16 property insurance during that year. The first board shall be
17 elected at a meeting of the members or their authorized
18 representatives. Any vacancy on the board shall be filled by a
19 vote of the other directors. If at any time the members fail to
20 elect the required number of directors or a vacancy remains
21 unfilled for more than 15 days, the commissioner may appoint the
22 directors necessary to constitute a full board.
23 (f) Participation.--All members of the facility shall
24 participate in its expenses and in its profits and losses, or in
25 such categories thereof as may be separately established by the
26 facility, in the proportion that the premiums written by each
27 such member during the second preceding calendar year bear to
28 the aggregate premiums written in this Commonwealth by all
29 members of the facility. For the purposes of computing the
30 proportion of participation, the "premiums written" shall not
19850H1962B2642 - 816 -
1 include the premiums attributable to the reinsurance arrangement
2 maintained by the facility. Participation by each member in the
3 facility shall be determined annually by the facility on the
4 basis of the premiums written during the second preceding
5 calendar year as disclosed in the annual statements and other
6 reports filed by the member with the commissioner.
7 (g) Termination of Federal reinsurance facility.--Policies
8 issued pursuant to the direction of and other obligations
9 incurred by the industry placement facility shall not be
10 impaired by the termination of the Federal reinsurance facility,
11 and the industry placement facility shall continue for the
12 purpose of servicing these policies and performing these
13 obligations.
14 § 5712. Fair plan.
15 The fair plan shall provide as follows:
16 (1) Any person having an insurable interest in real or
17 tangible personal property at a fixed location in an urban
18 area, his representative, an insurance agent or broker or an
19 insurer may request the facility for an inspection of the
20 property by representatives of the inspection bureau, such
21 inspection to be without cost to the applicant for insurance.
22 The request for such inspection need not be made in writing.
23 The risk shall not be written at surcharged rates or be
24 denied insurance coverage for basic property insurance by an
25 insurer unless such an inspection has first been made.
26 (2) The plan of operation of the inspection bureau, the
27 manner and scope of the inspection and the form of the
28 inspection report, which shall include, but need not be
29 limited to, pertinent structural and occupancy features as
30 well as the general condition of the building and surrounding
19850H1962B2642 - 817 -
1 structures, shall be prescribed by the industry placement
2 facility subject to the approval of the commissioner.
3 (3) Promptly after the request for inspection is
4 received by the facility, if no policy has been issued, the
5 inspection shall be made and a written inspection report
6 prepared and filed with any insurer designated by the
7 applicant and filed with the facility. A copy of the
8 inspection report shall be made available to the applicant or
9 his representative upon request. If no insurer has been
10 designated by the applicant, the facility shall proceed as
11 provided in paragraph (9).
12 (4) After the inspection report is received by an
13 insurer, it shall promptly determine if the risk meets
14 reasonable underwriting standards at the applicable premium
15 rate, including approved surcharges for physical
16 characteristics, and shall promptly return to the industry
17 placement facility the inspection report and provide an
18 action report, both of which shall be kept on file with the
19 facility. The action report shall set forth:
20 (i) the amount of coverage it agrees to write and,
21 if the insurer agrees to write the coverage with an
22 approved surcharge, the improvements necessary before it
23 will provide coverage at an unsurcharged premium rate;
24 (ii) the amount of coverage it agrees to write if
25 certain improvements to the property specified in the
26 action report are made; or
27 (iii) the specific reasons for which it declines to
28 write coverage.
29 (5) If the insurer declines the risk or agrees to write
30 it on condition that the property be improved as specified,
19850H1962B2642 - 818 -
1 the insurer shall, at the time of returning the inspection
2 and action reports to the facility, send a copy of both
3 reports to the applicant for insurance. The insurer shall
4 advise the applicant at the time of sending the reports to
5 him of his right to appeal the determination to the
6 commissioner and shall advise the applicant of the means by
7 which to initiate an appeal.
8 (6) The inspection bureau shall submit to the
9 commissioner periodic reports setting forth information by
10 individual insurers, including the number of risks inspected
11 under the plan, the number of risks accepted, the number of
12 risks conditionally accepted and reinspections made, the
13 number of risks declined and such other information as the
14 commissioner may request.
15 (7) All policies written pursuant to the fair plan shall
16 be promptly written after inspection or reinspection and
17 shall be separately coded so that appropriate records may be
18 compiled for purposes of ratemaking and performing loss
19 prevention and other studies of the operation of the fair
20 plan.
21 (8) If any single insurer will underwrite only a portion
22 of the full insurable value of the property, the industry
23 placement facility shall assist the owner and his agent or
24 broker in obtaining the remaining coverage from other members
25 of the facility, except to the extent that deductibles,
26 percentage participation clauses and other accepted
27 underwriting devices are needed to meet special problems of
28 insurability.
29 (9) If no insurer to which an inspection report has been
30 forwarded pursuant to paragraph (3) agrees promptly to
19850H1962B2642 - 819 -
1 provide basic property insurance for the property in
2 question, or if no insurer has been designated by the
3 applicant, the facility shall take appropriate action to
4 ascertain whether any member of the facility will provide
5 basic property insurance for the subject property at the
6 applicable premium rate, including approved surcharges for
7 physical characteristics.
8 (10) An insurer shall not direct any agent or broker or
9 other producer to avoid soliciting business through the fair
10 plan, and an agent, broker or other producer shall not be
11 penalized by an insurer for submitting applications for
12 insurance to it under the fair plan.
13 (11) Records of insurance procured under the fair plan
14 shall be maintained separately from other records of an
15 agent's or broker's business conducted with an insurer.
16 (12) Written notice will be given to any policyholder at
17 least 20 days prior to the cancellation or nonrenewal of any
18 risk eligible under the fair plan, except in the case of
19 nonpayment of premium or evidence of incendiarism, and the
20 insurer shall, in the notice of cancellation or nonrenewal,
21 explain to the policyholder the procedures for obtaining an
22 inspection under the plan.
23 (13) An agent or broker shall not be permitted to refuse
24 an application for basic property insurance within an urban
25 area if he is licensed to write and is actively engaged in
26 writing such insurance.
27 (14) A cooperative and continuing public education
28 program shall be undertaken by the department, the industry
29 placement facility and the members of the facility to assure
30 that the fair plan is given adequate publicity.
19850H1962B2642 - 820 -
1 § 5713. Distribution of risks.
2 (a) Powers of facility.--The facility shall have the
3 following powers, on behalf of its members:
4 (1) To direct one or more of its members to issue
5 policies of basic property insurance to applicants.
6 (2) To assume reinsurance from its members.
7 (3) To cede reinsurance.
8 (b) Ceding of coverage.--Any member of the facility may cede
9 to the facility basic property insurance covering property in
10 urban areas to the extent and on the terms and conditions set
11 forth in the plan of operation of the facility.
12 (c) Determination by facility.--If the facility has been
13 unable to obtain basic property insurance for any property
14 through the voluntary action of its members pursuant to section
15 5712 (relating to fair plan), it shall promptly determine
16 whether the property is insurable and whether there is any
17 unpaid premium due from the applicant for prior insurance on the
18 property. Any hazardous condition that might give rise to loss
19 under an insurance contract but which is beyond the control of
20 the property owners shall not be considered by the facility in
21 determining insurability. If the facility determines that the
22 property is insurable and that no unpaid premium is due, it
23 shall promptly cause one or more of its members to issue a
24 policy or policies of basic property insurance at the applicable
25 premium rate, including approved surcharges for physical
26 characteristics, in the full insurable value of the property,
27 for a term of one year, subject to total reinsurance of the risk
28 by the facility.
29 § 5714. Uninsurable risks.
30 If the facility finds that the property is not insurable, it
19850H1962B2642 - 821 -
1 shall promptly supply to the applicant a written statement
2 setting forth the features or conditions of the property which
3 prevent it from constituting an insurable risk and the actions,
4 if any, which would make the property an insurable risk.
5 § 5715. Regulation by commissioner.
6 The operation of the inspection bureau and the industry
7 placement facility shall at all times be subject to the
8 supervision and regulation of the commissioner. The
9 commissioner, or any person designated by him, shall have the
10 power of visitation of and examination into such operations at
11 any time in the discretion of the commissioner. In connection
12 therewith, the commissioner shall have the powers granted him by
13 section 512 (relating to powers with regard to examinations) and
14 the expenses of the examination shall be borne and paid as
15 provided in section 512.
16 § 5716. Annual and other statements.
17 The inspection bureau and the industry placement facility
18 shall each file with the commissioner annually on or before
19 March 1 a statement which shall contain information with respect
20 to its transactions, condition, operations and affairs during
21 the preceding year. This statement shall contain the information
22 prescribed by the commissioner and shall be in the form approved
23 by him. The commissioner may at any time require the bureau or
24 facility to furnish him with additional information with respect
25 to its transactions, condition, operations and affairs or any
26 matter connected therewith which he considers to be material and
27 which will assist him in evaluating their scope, operation and
28 experience.
29 § 5717. Privileged communications.
30 There shall be no liability on the part of, and no cause of
19850H1962B2642 - 822 -
1 action shall arise against, insurers, the inspection bureau, the
2 industry placement facility, their agents or employees, or the
3 commissioner or his authorized representatives, for any
4 statements made in good faith by them in any reports or
5 communications concerning the property to be insured, or in the
6 course of any hearings conducted in connection therewith, or in
7 the findings required by the provisions of this subchapter. The
8 inspection reports and communications of the inspection bureau
9 and the industry placement facility shall not be considered
10 public documents.
11 § 5718. Review.
12 Any applicant for insurance and any affected insurer may
13 appeal to the commissioner within 30 days after any ruling,
14 action or decision by or on behalf of the inspection bureau or
15 industry placement facility. After a hearing upon not less than
16 ten days' written notice to the aggrieved person and the bureau
17 or facility, the commissioner shall issue an order approving the
18 action or decision appealed from, disapproving such action or
19 decision or directing the bureau or facility to give further
20 consideration to the matter. All hearings, orders and decisions
21 of the commissioner pursuant to this subchapter shall be subject
22 to Title 2 (relating to administrative law and procedure).
23 SUBCHAPTER C
24 PENNSYLVANIA CIVIL DISORDER AUTHORITY
25 Sec.
26 5721. Formation of authority.
27 5722. Board of directors.
28 5723. Powers of authority.
29 5724. Civil Disorder Authority Fund.
30 5725. Reimbursement payments to Federal reinsurance facility.
19850H1962B2642 - 823 -
1 5726. Bonds of authority.
2 5727. Remedies of bondholder.
3 § 5721. Formation of authority.
4 In order to make available to insurers which participate in
5 the industry placement facility, the reinsurance afforded by the
6 Federal reinsurance facility against losses resulting from riots
7 and civil disorders, there shall be a separate and distinct body
8 corporate and politic which shall be known as the Pennsylvania
9 Civil Disorder Authority. The authority shall be an
10 instrumentality of the Commonwealth, and the exercise by the
11 authority of the powers conferred by this subchapter shall be
12 deemed an essential governmental function of the Commonwealth.
13 Bonds issued and other obligations incurred by the Pennsylvania
14 Civil Disorder Authority shall not be impaired by the
15 termination of the Federal reinsurance facility, and the
16 authority shall continue for the purpose of servicing these
17 bonds and performing these obligations.
18 § 5722. Board of directors.
19 (a) Composition.--The powers of the authority shall be
20 exercised by a board of directors composed of the Attorney
21 General, the Secretary of Revenue, the General Counsel and the
22 commissioner, who shall select from among themselves a chairman
23 and a vice chairman. The State Treasurer shall be the treasurer
24 of the authority.
25 (b) Bonds and obligations.--The members of the board shall
26 not be liable personally on the bonds or other obligations of
27 the authority, and the rights of creditors shall be solely
28 against the authority.
29 (c) Compensation and expenses.--The members of the board
30 shall receive no compensation for their services as members but
19850H1962B2642 - 824 -
1 shall be entitled to reimbursement for all necessary expenses
2 incurred in connection with the performance of their duties as
3 members.
4 (d) Agents and employees.--The authority may employ a
5 secretary, an executive director, its own counsel and legal
6 staff and such technical experts and other agents and employees,
7 permanent or temporary, as it may require, and may determine the
8 qualifications and fix the compensation of such persons. The
9 authority may delegate to one or more of its agents or employees
10 such of its powers as it deems necessary to carry out the
11 purposes of this chapter, subject to its supervision and
12 control.
13 § 5723. Powers of authority.
14 The authority shall exercise public powers of the
15 Commonwealth as an agency thereof, including the following
16 powers in addition to those otherwise granted in this chapter:
17 (1) To cooperate with any government or municipality.
18 (2) To act as agent of any government agency for the
19 public purposes set out in this chapter.
20 (3) To borrow funds from private lenders or from the
21 Commonwealth or the Federal Government, as may be necessary
22 for the operation and work of the authority, and to carry out
23 the purposes and provisions of this chapter.
24 (4) To invest any funds held in reserves or sinking
25 funds or any funds not required for immediate disbursement,
26 in such investments as may be lawful for executors,
27 administrators, guardians, trustees and other fiduciaries
28 under the law of this Commonwealth.
29 (5) To sue and be sued.
30 (6) To adopt a seal and to alter the same at pleasure.
19850H1962B2642 - 825 -
1 (7) To make and execute contracts and other instruments
2 necessary or convenient to the exercise of the powers of the
3 authority. Any contract or instrument when signed by the
4 chairman or vice chairman of the authority and by the
5 secretary or assistant secretary or treasurer or assistant
6 treasurer of the authority, or by an authorized use of their
7 facsimile signatures, shall be deemed properly executed for
8 and on its behalf.
9 (8) To make, amend and repeal bylaws, rules, regulations
10 and resolutions.
11 (9) To do all acts and things necessary or convenient to
12 carry out the powers granted to it by law, except that the
13 authority shall have no power to pledge the credit or taxing
14 power of the Commonwealth, nor shall any of its obligations
15 be deemed to be obligations of the Commonwealth.
16 § 5724. Civil Disorder Authority Fund.
17 (a) Purpose of fund.--The authority shall establish a Civil
18 Disorder Authority Fund which shall be available without fiscal
19 year limitation for the following purposes:
20 (1) To make such payments as may, from time to time, be
21 required by the Federal reinsurance facility.
22 (2) To pay proper administrative expenses of the
23 authority.
24 (3) To repay the obligations of the authority, including
25 interest thereon, incurred by the authority pursuant to the
26 provisions of this subchapter.
27 (b) Sources of revenue.--The fund shall be credited with:
28 (1) Such amounts as may be advanced to the fund from
29 whatever source in order to maintain the fund in a solvent
30 condition and able to satisfy its obligations.
19850H1962B2642 - 826 -
1 (2) Interest which may be earned on investments of the
2 fund.
3 (3) Moneys borrowed by the authority and deposited in
4 the fund.
5 (4) Receipts from any other source which may, from time
6 to time, be credited to the fund.
7 (c) Deposits.--All moneys of the fund, from whatever source
8 derived, shall be paid to the treasurer of the authority and
9 deposited by him in one or more banks or trust companies, in one
10 or more special accounts. Each of the special accounts shall be
11 continuously secured by a pledge of direct obligations of the
12 United States or of the Commonwealth, having an aggregate market
13 value, exclusive of accrued interest, at all times at least
14 equal to the balance on deposit in the account. The securities
15 shall either be deposited with the treasurer or be held by a
16 trustee or agent satisfactory to the authority. All banks and
17 trust companies are authorized to give security for these
18 deposits. The moneys in these accounts shall be paid out on the
19 warrant or other order of the treasurer of the authority or of
20 such other person or persons as it may authorize to execute such
21 warrants or orders.
22 (d) Examination of records.--The Department of Revenue and
23 the Auditor General and their legally authorized representatives
24 may from time to time examine the accounts and books of the
25 authority and any other matters relating to its finances,
26 operations and affairs.
27 § 5725. Reimbursement payments to Federal reinsurance facility.
28 (a) Authority to pay.--Payments under section 5724(a)(1)
29 (relating to Civil Disorder Authority Fund) shall be made only
30 upon direction of the State Treasurer and after receipt by him
19850H1962B2642 - 827 -
1 of a claim from the Federal reinsurance facility. Prior to
2 making the payment, the authority shall make such investigation
3 as it deems appropriate in order to verify the correctness of
4 the claim made by the Federal reinsurance facility.
5 (b) Limitation on amount.--The total amount of any such
6 payments made during any calendar year shall not exceed 5% of
7 the aggregate property insurance premiums earned in this
8 Commonwealth during the preceding calendar year on those lines
9 of insurance reinsured by the Federal reinsurance facility in
10 this Commonwealth during the current year.
11 § 5726. Bonds of authority.
12 (a) Determination of amount.--Within 30 days following
13 receipt of a direction from the State Treasurer to make payment
14 of a claim to the Federal reinsurance facility, the authority
15 shall make an offer to sell bonds. The aggregate principal
16 amount of these bonds shall be adequate to pay the total amount
17 of the claim received from the Federal reinsurance facility,
18 subject to the limitation contained in section 5725(b) (relating
19 to reimbursement payments to Federal reinsurance facility), plus
20 the reasonable expenses of the sale, due consideration having
21 been first given to the moneys in the fund and available for
22 payment of the claim of the Federal reinsurance facility.
23 (b) Disposition of proceeds.--The proceeds of the sale of
24 such bonds shall be paid into the fund and shall be used to
25 satisfy the claim of the Federal reinsurance facility which
26 occasioned the sale of the bonds. Any amount remaining after
27 satisfaction of the claim shall be held in the fund and may be
28 used for any of the purposes set forth in section 5724 (relating
29 to Civil Disorder Authority Fund).
30 (c) Form and delivery.--The bonds of the authority shall be
19850H1962B2642 - 828 -
1 authorized by resolution of the board or by and pursuant to an
2 indenture of trust and shall be of the series, bear the date or
3 dates, be stated to mature at the time or times, not exceeding
4 30 years from their respective dates, be issued as serial or
5 term bonds, or as part serial and part term bonds, or any
6 combination thereof, or as a single bond payable in
7 installments, bear interest payable annually, semiannually or
8 quarterly, be in the denominations, be in the form, either as
9 negotiable commercial paper, or as investment securities in
10 bearer or registered form, carry the registration,
11 exchangeability and interchangeability privileges, be payable in
12 the medium of payment and at the place or places, be subject to
13 the terms of redemption at the prices not exceeding 106% of the
14 principal amount thereof, and be entitled to the priorities in
15 the revenues or receipts of authority as the resolution or
16 indenture may provide. The bonds shall be signed manually or by
17 facsimile by such officers as the authority shall determine, and
18 coupon bonds shall have attached thereto interest coupons
19 bearing the facsimile signature of the treasurer of the
20 authority, as may be prescribed in the resolution or indenture.
21 A bond shall not be issued or delivered without at least one
22 manual signature, which may be that of an officer of the fiscal
23 agent or of the trustee under the resolution or indenture. The
24 bonds may be issued and delivered notwithstanding that one or
25 more of the officers signing the bonds, or the treasurer whose
26 facsimile signature is upon the coupons or any thereof, has
27 ceased to hold the office when the bonds are delivered.
28 (d) Additional terms.--Any resolution or indenture
29 authorizing any bonds may contain provisions which shall be part
30 of the contract with the bondholders as to:
19850H1962B2642 - 829 -
1 (1) Pledge of the full faith and credit of the
2 authority, but not of the Commonwealth or any political
3 subdivision thereof, for the bonds or restricting the same to
4 all or any of the revenues or receipts of the authority.
5 (2) The terms of the bonds.
6 (3) The setting aside of reserves or sinking funds and
7 the regulation and disposition thereof.
8 (4) Any terms for the security of the bonds or under
9 which the bonds may be issued.
10 (5) Any other or additional agreements with the holder
11 of the bonds.
12 (e) Sale.--The bonds shall be sold to the highest
13 responsible bidders proposing the lowest net interest cost to
14 the authority, determined by computing the interest on the bonds
15 to their stated maturity dates and adding the discount or
16 subtracting the premium specified in the bid. There shall be
17 public notice of the bid by two advertisements in not less than
18 three nor more than five newspapers of large general circulation
19 in different parts of this Commonwealth, the first advertisement
20 to be published not less than 20 days and the second not less
21 than five days before the day fixed for the opening of bids. The
22 advertisement of sale shall contain a general description of the
23 bonds, the manner, place and time of the sale, or the time limit
24 for the receipt of proposals, the name of the officer to whom,
25 or to whose designee, bids or proposals shall be delivered and a
26 statement of the terms and conditions of sale. The bonds may be
27 sold to the State Employees' Retirement Board, or to any other
28 custodial board or fund, or to the State Employees' Retirement
29 Fund, or by private placement with a group of not more than 25
30 ultimate investors who purchase for investment and not with a
19850H1962B2642 - 830 -
1 view to distribution, without advertisement or competitive
2 bidding. Bonds shall not be sold if the net interest cost,
3 computed to stated maturity dates of the bonds, of the money
4 received for any issue of the bonds exceeds 6% a year. Pending
5 the preparation of the definitive bonds, interim receipts or
6 temporary bonds may be issued to the purchasers of the bonds and
7 may contain such terms and conditions as the authority may
8 determine.
9 (f) Agreements.--The authority may enter into any indentures
10 of trust or other agreements with any bank or trust company or
11 other person in the United States having power to enter into
12 such agreements, or may designate any such person as fiscal
13 agent under a bond resolution, in order to provide for the
14 security for such bonds, and may assign and pledge all or any of
15 its revenues or receipts thereunder. The indenture, resolution
16 or other agreement may contain such provisions as may be
17 customary in such instruments or as the authority may authorize,
18 including provisions as to:
19 (1) The application of funds and the safeguarding of
20 funds on hand, invested or on deposit.
21 (2) The rights and remedies of the trustees or fiscal
22 agent and the bondholders (which may include restrictions
23 upon the individual right of action of the bondholders).
24 (3) The terms and provisions of the bonds or the
25 resolutions or indentures authorizing their issuance.
26 § 5727. Remedies of bondholder.
27 (a) Remedies cumulative.--The rights and the remedies
28 conferred by this section upon or granted to the bondholders
29 shall be in addition to and not in limitation of any rights and
30 remedies lawfully granted to the bondholders by the resolution
19850H1962B2642 - 831 -
1 or indenture providing for the issuance of bond.
2 (b) Appointment of trustee.--If the authority:
3 (1) defaults in the payment of the interest on any of
4 the bonds after it becomes due and the default continues for
5 30 days;
6 (2) defaults in the payment of principal after it
7 becomes due whether at maturity or upon any unrevoked call
8 for redemption;
9 (3) fails or refuses to comply with the provisions of
10 this chapter; or
11 (4) defaults in any agreement made with the holders of
12 the bonds;
13 the holders of 25% in aggregate principal amount of bonds then
14 outstanding under the indenture or bond resolution involved, by
15 instrument or instruments filed in the office of the Recorder of
16 Deeds of the County of Dauphin and proved or acknowledged in the
17 same manner as a deed to be recorded may, except as this right
18 is limited under any such indenture or other agreement, appoint
19 a trustee to represent the bondholders for the purposes provided
20 in this section.
21 (c) Powers of trustee.--The trustee or any trustee under an
22 indenture or the fiscal agent under resolution or other
23 agreement may, and upon written request of the holders of 25% in
24 principal amount of the bonds outstanding under the authorizing
25 indenture or resolution, or other percentage specified in any
26 resolution, indenture or other agreement, shall, in his or its
27 own name:
28 (1) by mandamus or other action or proceeding at law or
29 in equity, enforce all rights of the bondholders, including
30 the right to require the authority to carry out any agreement
19850H1962B2642 - 832 -
1 as to, or pledge of, the revenues or receipts of the
2 authority and to require the authority to carry out any other
3 agreements with, or for the benefit of, the bondholders, and
4 to perform its duties under this chapter;
5 (2) bring suit upon the bonds;
6 (3) by action or suit in equity, require the authority
7 to account as if it were the trustees of an express trust for
8 the bondholders; or enjoin any acts or things which may be
9 unlawful or in violation of the rights of the bondholders; or
10 (4) by notice in writing to the authority, declare all
11 bonds due and payable and, if all defaults shall be made
12 good, then with the consent of the holders of 25% of the
13 principal amount of the bonds then outstanding, or other
14 percentage specified in any indenture, resolution or other
15 agreement aforesaid, annul the declaration and its
16 consequences.
17 SUBCHAPTER D
18 BASIC PROPERTY INSURANCE ASSESSMENT
19 Sec.
20 5731. Levy and amount of assessment.
21 5732. Payments to Pennsylvania Civil Disorder Authority.
22 5733. Reports and statements.
23 5734. Duration of assessment.
24 § 5731. Levy and amount of assessment.
25 In order to provide for the payment of the principal of and
26 interest on bonds of the authority, issued pursuant to section
27 5726 (relating to bonds of authority), an assessment shall be
28 levied on each insurer which is a member of the industry
29 placement facility. The amount of the assessment shall be 2% of
30 the aggregate gross premiums received by the insurer for
19850H1962B2642 - 833 -
1 policies of basic property insurance or any component thereof,
2 including homeowners and commercial multiple peril policies,
3 written in this Commonwealth.
4 § 5732. Payments to Pennsylvania Civil Disorder Authority.
5 Every insurer shall, on or before April 15 of each year,
6 compute and pay to the treasurer of the Pennsylvania Civil
7 Disorder Authority the aggregate assessments due upon the gross
8 premiums received by it for basic property insurance written in
9 this Commonwealth during the calendar year immediately preceding
10 the payment date. The aggregate assessments shall bear interest
11 at the rate of 6% a year from the date due and payable to the
12 authority until payment is made.
13 § 5733. Reports and statements.
14 The commissioner may at any time require any insurer to
15 furnish him with such information as he, in his discretion,
16 deems necessary in order to determine whether or not the insurer
17 is complying with this subchapter.
18 § 5734. Duration of assessment.
19 The assessment provided for under this subchapter shall be
20 collectible on all policies of basic property insurance or any
21 component thereof, including homeowners and commercial multiple
22 peril policies, written on and after the 30th day following
23 issuance by the authority of its bonds under section 5726
24 (relating to bonds of authority). The assessment shall remain in
25 full force and effect until all bonds issued by the Pennsylvania
26 Civil Disorder Authority have been retired, and shall thereafter
27 terminate at such time and upon such terms and conditions as
28 shall be specified by the board of the authority.
1 CHAPTER 59
19850H1962B2642 - 834 -
1 FIRE AND MARINE INSURANCE
2 Subchapter
3 A. Insurers Generally
4 B. Stock Companies
5 C. Mutual Companies
6 SUBCHAPTER A
7 INSURERS GENERALLY
8 Sec.
9 5901. Resident agents for foreign or alien insurance entities.
10 5902. Examination of foreign or alien entities by commissioner.
11 5903. Annual returns.
12 5904. Penalties and revocation of license.
13 5905. Reports of fires to Bureau of Fire Protection.
14 5906. Provisions of fire insurance policies.
15 5907. Penalties for issuing other than standard fire policies.
16 § 5901. Resident agents for foreign or alien insurance
17 entities.
18 (a) General rule.--An authorized foreign or alien stock or
19 mutual fire insurance entity authorized to transact business in
20 this Commonwealth shall not make, write or place, or cause to be
21 made, written or placed, any policy, duplicate policy, contract
22 of insurance or general or floating policy upon property located
23 in this Commonwealth except after the risk has been approved in
24 writing by an agent, who is a resident of or whose principal
25 place of business is in this Commonwealth and who is licensed to
26 transact insurance business in this Commonwealth. The agent
27 shall countersign all policies so issued and receive the
28 commission thereon when the premium is paid, so that the
29 Commonwealth may receive the taxes required to be paid on the
30 premiums collected for insurance on all property located in this
19850H1962B2642 - 835 -
1 Commonwealth.
2 (b) Policies written at principal office.--The entity may
3 issue policies at its principal or department offices covering
4 property in this Commonwealth, if these policies are issued upon
5 applications procured and submitted to the entity by agents who
6 are residents of this Commonwealth and licensed to transact the
7 business of insurance in this Commonwealth, and who shall
8 receive the commission thereon when paid.
9 (c) Exclusions.--This section does not apply to direct
10 insurance covering the rolling stock of railroad corporations,
11 or property in transit while in the possession and custody of
12 railroad corporations or other common carriers nor to the
13 property of such common carriers used or employed by them in
14 their business as common carriers of freight, merchandise or
15 passengers, nor in the case of bid bonds issued in connection
16 with public or private contracts. Except as to payment of taxes,
17 this section does not apply to authorized foreign or alien
18 insurance exchanges maintaining no office in this Commonwealth
19 and paying no commissions to agents or representatives in this
20 Commonwealth.
21 § 5902. Examination of foreign or alien entities by
22 commissioner.
23 Whenever the commissioner has information that any foreign or
24 alien insurance entity has violated section 5901 (relating to
25 resident agents for foreign or alien insurance entities), he
26 may, at the expense of the entity, examine all books, records
27 and papers of the entity and examine the officers, managers and
28 agents of the entity under oath as to any violation. The
29 examination may take place at the principal office or offices of
30 the entity located in the United States or in any foreign
19850H1962B2642 - 836 -
1 country and at its other offices or agencies. The refusal of any
2 entity to submit to examination shall be presumptive evidence
3 that it has violated section 5901 and shall subject it to the
4 penalties prescribed and imposed by section 5904 (relating to
5 penalties and revocation of license).
6 § 5903. Annual returns.
7 Every foreign or alien stock and mutual fire insurance entity
8 shall, annually and at such other times as the commissioner
9 requires, make a return to the commissioner, in such form and
10 detail as shall be prescribed by him, of all insurance,
11 reinsurance or cessions of risks or liability contracted for or
12 effected by it, whether by issue of policy, entry on bordereau,
13 general participation agreement, excess loss reinsurance or any
14 other manner upon property located in this Commonwealth, or
15 covering any risk or liability upon property so located. The
16 return shall be certified:
17 (1) if a foreign entity, by the oath of its president
18 and secretary or attorney; or
19 (2) if an alien company or association, by the oath of
20 its managers in the United States, as to the reinsurance or
21 cessions effected through its branch office in the United
22 States, and by the oath of its president and secretary or by
23 officers corresponding thereto at its home office, as to
24 reinsurance or cessions as aforesaid contracted for or
25 effected through any office in a foreign county.
26 The refusal of any such entity to make the returns required
27 under this section shall be presumptive evidence that it is
28 guilty of violating section 5901 (relating to resident agents
29 for foreign or alien insurance entities) and shall subject it to
30 the penalties under section 5904 (relating to penalties and
19850H1962B2642 - 837 -
1 revocation of license).
2 § 5904. Penalties and revocation of license.
3 (a) Penalty.--Any foreign or alien stock or mutual fire
4 insurance entity violating section 5901 (relating to resident
5 agents for foreign or alien insurance entities), 5902 (relating
6 to examination of foreign or alien entities by commissioner) or
7 5903 (relating to annual returns) shall be subject to a penalty
8 of $500 for each violation. This penalty may be imposed by the
9 commissioner upon satisfactory evidence of the violation by any
10 such entity.
11 (b) Revocation of authority.--Any foreign or alien fire
12 insurance entity which neglects or refuses to pay the penalty
13 for 30 days after the imposition thereof shall have its
14 authority to transact business in this Commonwealth revoked by
15 the commissioner for at least one year from the date of the
16 violation. A fire insurance entity whose authority to transact
17 business in this Commonwealth has been so revoked shall not be
18 again authorized to transact business until it has paid the
19 penalty, and has filed in the office of the commissioner a
20 certificate, signed by its president or other chief officer,
21 stating that the provisions of this chapter are accepted by it
22 as a part of the conditions of its authority to transact
23 business.
24 (c) Hearing and notice.--Before the commissioner takes any
25 action under this section, he shall give written notice to the
26 person accused of violating the law, stating specifically the
27 nature of the alleged violation and fixing a time and place, at
28 least ten days thereafter, when a hearing of the matter shall be
29 held.
30 § 5905. Reports of fires to Bureau of Fire Protection.
19850H1962B2642 - 838 -
1 Every stock or mutual fire insurance entity transacting
2 business in this Commonwealth shall file with the Bureau of Fire
3 Protection in the Pennsylvania State Police annual and monthly
4 reports in writing, containing such information as is required
5 to be reported by the entities under the act of April 27, 1927
6 (P.L.450, No.291), relating to fire and fire prevention. Any
7 entity which fails to make that report shall forfeit its
8 authority to do business in this Commonwealth.
9 § 5906. Provisions of fire insurance policies.
10 (a) Standard provisions.--Except as provided in this
11 section, an insurance entity shall not issue a policy affording
12 fire insurance on property in this Commonwealth unless the
13 policy contains the following provisions as to such insurance:
14 (1) Introductory provisions.--In Consideration of the
15 Provisions and Stipulations herein or added hereto and of
16 .................... Dollars Premium this company, for the
17 term of ............. from the .... day of ......... 19.., at
18 noon to the .... day of ......... 19.., at noon, at (location
19 of property involved) to an amount not exceeding
20 .................... Dollars, does insure
21 .................... and legal representatives, to the extent
22 of the actual cash value of the property at the time of loss,
23 but not exceeding the amount which it would cost to repair or
24 replace the property with material of like kind and quality
25 within a reasonable time after such loss, without allowance
26 for any increased cost of repair or reconstruction by reason
27 of any ordinance or law regulating construction or repair,
28 and without compensation for loss resulting from interruption
29 of business or manufacture, nor in any event for more than
30 the interest of the insured, against all DIRECT LOSS BY FIRE,
19850H1962B2642 - 839 -
1 LIGHTNING AND BY REMOVAL FROM PREMISES ENDANGERED BY THE
2 PERILS INSURED AGAINST IN THIS POLICY, EXCEPT AS HEREINAFTER
3 PROVIDED, to the property described hereinafter while located
4 or contained as described in this policy, or pro rata for
5 five days at each proper place to which any of the property
6 shall necessarily be removed for preservation from the perils
7 insured against in this policy, but not elsewhere.
8 Assignment of this policy shall not be valid except with
9 the written consent of this Company.
10 This policy is made and accepted subject to the foregoing
11 provisions and stipulations and those hereinafter stated,
12 which are hereby made a part of this policy, together with
13 such other provisions, stipulations and agreements as may be
14 added hereto, as provided in this policy.
15 IN WITNESS WHEREOF, this Company has executed and
16 attested these presents: but this policy shall not be valid
17 unless countersigned by the duly authorized agent of this
18 Company at .................... Secretary. President.
19 Countersigned this .... day of ......... 19 ... Agent.
20 (2) Concealment and fraud.--This entire policy shall be
21 void if, whether before or after a loss, the insured has
22 willfully concealed or misrepresented any material fact or
23 circumstance concerning this insurance or the subject
24 thereof, or the interest of the insured therein, or in case
25 of any fraud or false swearing by the insured relating
26 thereto.
27 (3) Uninsurable and excepted property.--This policy
28 shall not cover accounts, bills, currency, deeds, evidences
29 of debt, money or securities; nor, unless specifically named
30 hereon in writing, bullion or manuscripts.
19850H1962B2642 - 840 -
1 (4) Perils not included.--This Company shall not be
2 liable for loss by fire or other perils insured against in
3 this policy caused, directly or indirectly, by:
4 (i) enemy attack by armed forces, including action
5 taken by military, naval or air forces in resisting an
6 actual or an immediately impending enemy attack;
7 (ii) invasion;
8 (iii) insurrection;
9 (iv) rebellion;
10 (v) revolution;
11 (vi) civil war;
12 (vii) usurped power;
13 (viii) order of any civil authority except acts of
14 destruction at the time of and for the purpose of
15 preventing the spread of fire, if the fire did not
16 originate from any of the perils excluded by this policy;
17 (ix) neglect of the insured to use all reasonable
18 means to save and preserve the property at and after a
19 loss, or when the property is endangered by fire in
20 neighboring premises; or
21 (x) theft.
22 (5) Other insurance.--Other insurance may be prohibited
23 or the amount of insurance may be limited by endorsement
24 attached hereto.
25 (6) Conditions suspending or restricting insurance.--
26 Unless otherwise provided in writing added hereto this
27 Company shall not be liable for loss occurring:
28 (i) While the hazard is increased by any means
29 within the control or knowledge of the insured.
30 (ii) While a described building, whether intended
19850H1962B2642 - 841 -
1 for occupancy by owner or tenant, is vacant or unoccupied
2 beyond a period of 60 consecutive days.
3 (iii) As a result of explosion or riot, unless fire
4 ensues, and in that event for loss by fire only.
5 (7) Other perils or subjects.--Any other peril to be
6 insured against or subject of insurance to be covered in this
7 policy shall be by endorsement in writing hereon or added
8 hereto.
9 (8) Added provisions.--The extent of the application of
10 insurance under this policy and of the contribution to be
11 made by this Company in case of loss, and any other provision
12 or agreement not inconsistent with the provisions of this
13 policy, may be provided for in writing added hereto, but no
14 provision may be waived except such as by the terms of this
15 policy is subject to change.
16 (9) Waiver provisions.--No permission affecting this
17 insurance shall exist, or waiver of any provision be valid,
18 unless granted herein or expressed in writing added hereto.
19 No provision, stipulation or forfeiture shall be held to be
20 waived by any requirement or proceeding on the part of this
21 Company relating to appraisal or to any examination provided
22 for herein.
23 (10) Cancellation of policy.--This policy shall be
24 canceled at any time at the request of the insured, in which
25 case this Company shall, upon demand and surrender of this
26 policy, refund the excess of paid premium above the customary
27 short rates for the expired time. This policy may be canceled
28 at any time by this Company by giving to the insured a five
29 days' written notice of cancellation with or without tender
30 of the excess of paid premium above the pro rata premium for
19850H1962B2642 - 842 -
1 the expired time, which excess, if not tendered, shall be
2 refunded on demand. Notice of cancellation shall state that
3 the excess premium (if not tendered) will be refunded on
4 demand.
5 (11) Mortgagee interests and obligations.--If loss
6 hereunder is made payable, in whole or in part, to a
7 designated mortgagee not named herein as the insured, such
8 interest in this policy may be canceled by giving to the
9 mortgagee a ten days' written notice of cancellation. If the
10 insured fails to render proof of loss, the mortgagee, upon
11 notice, shall render proof of loss in the form herein
12 specified within 60 days thereafter and shall be subject to
13 the provisions hereof relating to appraisal and time of
14 payment and of bringing suit. If this Company shall claim
15 that no liability existed as to the mortgagor or owner, it
16 shall, to the extent of payment of loss to the mortgagee, be
17 subrogated to all the mortgagee's rights of recovery, but
18 without impairing mortgagee's right to sue; or it may pay off
19 the mortgage debt and require an assignment thereof and of
20 the mortgage. Other provisions relating to the interests and
21 obligations of such mortgagee may be added hereto by
22 agreement in writing.
23 (12) Pro rata liability.--This Company shall not be
24 liable for a greater proportion of any loss than the amount
25 hereby insured shall bear to the whole insurance covering the
26 property against the peril involved, whether collectible or
27 not.
28 (13) Requirements in case loss occurs.--The insured
29 shall give immediate written notice to this Company of any
30 loss, protect the property from further damage, forthwith
19850H1962B2642 - 843 -
1 separate the damaged and undamaged personal property, put it
2 in the best possible order, furnish a complete inventory of
3 the destroyed, damaged and undamaged property, showing in
4 detail quantities, costs, actual cash value and amount of
5 loss claimed; and within 60 days after the loss, unless such
6 time is extended in writing by this Company, the insured
7 shall render to this Company a proof of loss, signed and
8 sworn to by the insured, stating the knowledge and belief of
9 the insured as to the following: the time and origin of the
10 loss, the interest of the insured and of all others in the
11 property, the actual cash value of each item thereof and the
12 amount of loss thereto, all encumbrances thereon, all other
13 contracts of insurance, whether valid or not, covering any of
14 the property, any changes in the title, use, occupation,
15 location, possession or exposures of the property since the
16 issuing of this policy, by whom and for what purpose any
17 building herein described and the several parts thereof were
18 occupied at the time of loss and whether or not it then stood
19 on leased ground, and shall furnish a copy of all the
20 descriptions and schedules in all policies and, if required,
21 verified plans and specifications of any building, fixtures
22 or machinery destroyed or damaged. The insured, as often as
23 may be reasonably required, shall exhibit to any person
24 designated by this Company all that remains of any property
25 herein described, and submit to examinations under oath by
26 any person named by this Company, and subscribe the same;
27 and, as often as may be reasonably required, shall produce
28 for examination all books of account, bills, invoices and
29 other vouchers, or certified copies thereof if originals be
30 lost, at such reasonable time and place as may be designated
19850H1962B2642 - 844 -
1 by this Company or its representative, and shall permit
2 extracts and copies thereof to be made.
3 (14) Appraisal.--In case the insured and this Company
4 shall fail to agree as to the actual cash value or the amount
5 of loss, then, on the written demand of either, each shall
6 select a competent and disinterested appraiser and notify the
7 other of the appraiser selected within 20 days of such
8 demand. The appraisers shall first select a competent and
9 disinterested umpire; and failing for 15 days to agree upon
10 such umpire, then, on request of the insured or this Company,
11 such umpire shall be selected by a judge of a court of record
12 in the state in which the property covered is located. The
13 appraisers shall then appraise the loss, stating separately
14 actual cash value and loss to each item; and, failing to
15 agree, shall submit their differences, only, to the umpire.
16 An award in writing, so itemized, of any two when filed with
17 this Company shall determine the amount of actual cash value
18 and loss. Each appraiser shall be paid by the party selecting
19 him and the expenses of appraisal and umpire shall be paid by
20 the parties equally.
21 (15) Company's options.--It shall be optional with this
22 Company to take all, or any part, of the property at the
23 agreed or appraised value, and also to repair, rebuild or
24 replace the property destroyed or damaged with other of like
25 kind and quality within a reasonable time, on giving notice
26 of its intention so to do within 30 days after the receipt of
27 the proof of loss herein required.
28 (16) Abandonment.--There can be no abandonment to this
29 Company of any property.
30 (17) When loss payable.--The amount of loss for which
19850H1962B2642 - 845 -
1 this Company may be liable shall be payable 60 days after
2 proof of loss, as herein provided, is received by this
3 Company and ascertainment of the loss is made either by
4 agreement between the insured and this Company expressed in
5 writing or by the filing with this Company of an award as
6 herein provided.
7 (18) Suit.--No suit or action on this policy for the
8 recovery of any claim shall be sustainable in any court of
9 law or equity unless all the requirements of this policy
10 shall have been complied with, and unless commenced within
11 twelve months next after inception of the loss.
12 (19) Subrogation.--This Company may require from the
13 insured an assignment of all right of recovery against any
14 party for loss to the extent that payment therefor is made by
15 this Company.
16 (b) Designation.--There may be printed upon the face of a
17 policy which contains the provisions set forth in subsection (a)
18 the words "Standard Fire Insurance Policy of the State of
19 Pennsylvania" and including the name of any other states which
20 adopt this form of policy.
21 (c) Applicability.--Subsections (a) and (b) do not apply to
22 policies of perpetual insurance, policies of reinsurance,
23 policies of an all-risk type, policies insuring aircraft,
24 automobile or other motor vehicles against loss by fire, or
25 policies insuring against loss by fire resulting directly or
26 indirectly from bombardment, invasion, insurrection, riot, civil
27 war, commotion or military or usurped power or by order of civil
28 authority.
29 (d) Approved modifications.--A policy affording fire
30 insurance may, subject to the approval of the commissioner as
19850H1962B2642 - 846 -
1 provided in section 3515 (relating to approval of contracts by
2 commissioner), include any other insurances which the insurer is
3 authorized to make, and the wording set out in subsection (a)
4 may be modified in conformity with the provisions thereof or to
5 accommodate additional property coverages and perils.
6 (e) Exceptions.--Notwithstanding any other provisions of
7 this section:
8 (1) An insurer may print on its policy its name, such
9 device or devices as the insurer issuing the policy may
10 desire, the location of its principal office, the date of its
11 formation, plan of operation, the amount of its paid-up
12 capital, if any, the name of its officers and agents, the
13 number and date of the policy, and, if it is issued through
14 an agent, the words: "This policy shall not be valid unless
15 countersigned by the duly authorized agent of the company at
16 ........."
17 (2) An insurer may print in its policies any provisions
18 which it is authorized or required by law to insert therein,
19 and a foreign or alien insurer may, with the approval of the
20 commissioner, so print any provisions required by its charter
21 or deed of settlement or by the laws of its own State or
22 country not contrary to the law of this Commonwealth.
23 (3) An insurer may add, either upon the face of the
24 policy or on the riders or endorsements to be attached
25 thereto, printed or written forms of description and
26 specification or schedules of the property covered by any
27 particular policy and any other matter necessary to express
28 clearly all the facts and conditions of insurance on any
29 particular risk. Insurers issuing the standard policy defined
30 in subsection (a) may affix thereto or include therein a
19850H1962B2642 - 847 -
1 written statement that the policy does not cover loss or
2 damage caused by nuclear reaction or nuclear radiation or
3 radioactive contamination, whether directly or indirectly
4 resulting from an insured peril under the policy. This
5 subsection does not prohibit the attachment to any such
6 policy of an endorsement or endorsements specifically
7 assuming coverage for such loss or damage. Any endorsements
8 or riders so attached must be signed by officers or agents of
9 the company so issuing them.
10 (4) Binders or other contracts for temporary insurance
11 including fire insurance may be made orally or in writing,
12 for a period which shall not exceed 30 days, and shall be
13 deemed to include all the provisions of subsection (a) and
14 all applicable endorsements approved by the commissioner as
15 may be designated in the contract of temporary insurance,
16 except that the cancellation clause and the clause specifying
17 the hour of the day at which the insurance shall commence may
18 be provided by the express terms of the contract of temporary
19 insurance.
20 (5) Appropriate forms of supplemental contracts or
21 extended coverage endorsements whereby the interest in the
22 property described in a policy affording fire insurance shall
23 be insured against one or more of the other perils which the
24 insurer is empowered to assume may be approved by the
25 commissioner, and their use in connection with the fire
26 insurance policy may be authorized by him. A form of policy
27 affording fire insurance may be arranged to provide space for
28 the listing of amounts of insurance, with insurance rates and
29 premiums for the basic coverage insured thereunder, and for
30 additional coverages or perils insured under endorsements
19850H1962B2642 - 848 -
1 attached, and such other data as may be conveniently included
2 for duplication on daily reports for office records.
3 (f) Printing on form.--The form of policy, including fire
4 insurance, upon property in this Commonwealth shall be plainly
5 printed, and no portion thereof shall be in type smaller than
6 seven point.
7 (g) Statement of location.--A foreign fire insurance company
8 shall not issue a policy affording fire insurance on property in
9 this Commonwealth unless the policy contains the exact name of
10 the municipal corporation in which the insured property is
11 located and the mailing address for each insured property.
12 (h) Definition.--As used in this section the term "fire
13 insurance" means insurance against loss by fire, lightning or
14 removal, as specified in section 3302(b)(1) (relating to
15 authorized classes of insurance) and does not include insurance
16 of the kind specified in any other portion of section 3302
17 whether or not the risks of fire, lightning or removal are
18 included.
19 § 5907. Penalties for issuing other than standard fire
20 policies.
21 (a) Civil penalties.--Upon satisfactory evidence that any
22 person, corporation or insurance entity has issued, or caused to
23 be issued, any policy or contract of fire insurance on property
24 situated in this Commonwealth contrary to the provisions of
25 section 5906 (relating to provisions of fire insurance
26 policies), the commissioner may take against the offending party
27 any one or more of the following courses of actions:
28 (1) Suspend or revoke his or its license.
29 (2) Refuse, for a period not exceeding one year
30 thereafter, to issue him or it a new license.
19850H1962B2642 - 849 -
1 (3) Impose a penalty of not more than $1,000 for each
2 violation.
3 (b) Criminal penalties.--Any person, corporation or
4 insurance entity that, either as principal or agent, willfully
5 issues, or causes to be issued, any policy or contract of fire
6 insurance on property in this Commonwealth in violation of
7 section 5906 commits a misdemeanor of the third degree and, upon
8 conviction, shall be sentenced to pay a fine not exceeding $500.
9 (c) Construction of contract.--Any policy issued in
10 violation of section 5906 shall nevertheless be construed in
11 accordance with its provisions.
12 SUBCHAPTER B
13 STOCK COMPANIES
14 Sec.
15 5921. Capital of foreign or alien companies.
16 5922. Authorized investment of capital.
17 5923. Investment of surplus.
18 5924. Treasury stock.
19 5925. Estimation of surplus for dividends.
20 5926. Authorized holdings of real estate.
21 5927. Procedure when capital impaired.
22 § 5921. Capital of foreign or alien companies.
23 A foreign or alien stock fire, stock marine and stock fire
24 and marine insurance company shall not be authorized in this
25 Commonwealth to transact any of the classes of business referred
26 to in section 3302(b) (relating to authorized classes of
27 insurance) unless it has a paid-up and safely invested capital,
28 if a foreign company, or a deposit in the United States, if an
29 alien company, of not less than $200,000. The company shall not
30 be authorized to do all of the classes of business referred to
19850H1962B2642 - 850 -
1 in section 3302(b) unless it has a paid-up capital or deposit of
2 not less than $400,000.
3 § 5922. Authorized investment of capital.
4 Every domestic stock fire, stock marine or stock fire and
5 marine insurance company shall invest and keep invested all its
6 capital in sound investments within the classes described in
7 section 5503 (relating to investment of capital), except such
8 cash as is required in the transaction of its business.
9 § 5923. Investment of surplus.
10 Any money over and above the capital of any stock fire, stock
11 marine and stock fire and marine insurance company, may be
12 invested in:
13 (1) The securities authorized for investment of capital.
14 (2) Any investment described in section 5505(a)(1) or
15 (3) (relating to investment of surplus).
16 (3) The stock or other evidence of indebtedness of any
17 solvent corporation created under the law of the United
18 States or any state, foreign country or political subdivision
19 thereof, or loaned upon the pledge of such a corporation.
20 The total investments made by such company in stocks of other
21 insurance companies which have invested in or loaned its funds
22 on the stock of the first investing company shall not exceed 5%
23 of the gross assets of the first investing company. The total
24 investments hereafter made by such company in the stocks or
25 other evidence of indebtedness of solvent alien corporations
26 shall not exceed 10% of the moneys of such company over and
27 above its capital and the reserves which it is required to
28 maintain under the law of this Commonwealth. The current market
29 value of securities shall at the time of any loan thereon be at
30 least 20% more than the sum loaned. The insurance company shall
19850H1962B2642 - 851 -
1 not invest any of its funds in any unincorporated business or
2 enterprise or the stocks or evidence of indebtedness of any
3 corporation, if the owners or holders of its securities are or
4 may become liable on account thereof to any assessment, except
5 for taxes. The funds of such a company shall not be loaned on
6 personal security except for defraying the expenses of an
7 employee transferred or about to be transferred to a new place
8 of employment with the company. Not more than 20% of its capital
9 shall be invested in a single mortgage. If any investment or
10 loan is made or held which is not authorized by this section,
11 the officers and directors making or authorizing the investment
12 or loan shall be personally liable for any loss occasioned
13 thereby, and no value as an asset shall be allowed for the
14 investment or loan.
15 § 5924. Treasury stock.
16 Any stock fire, stock marine or stock fire and marine
17 insurance company may, with the approval of its board of
18 directors, acquire, retain, cancel or dispose of shares of its
19 own capital stock, but no such company shall acquire such stock
20 without the prior approval of the commissioner, reduce its
21 capital stock without complying with law or directly or
22 indirectly vote shares of its own stock held by it.
23 § 5925. Estimation of surplus for dividends.
24 (a) General rule.--In estimating the surplus of a stock
25 fire, stock marine and stock fire and marine insurance company,
26 for the purpose of making any dividend upon its capital stock,
27 there shall be reserved from its admitted assets a sum equal to
28 the unearned premiums on unexpired risks and policies and all
29 outstanding liabilities. A company may not declare dividends to
30 the stockholders exceeding 10% on its capital stock in any one
19850H1962B2642 - 852 -
1 year unless, in addition to the amount of its capital stock, the
2 dividend, all outstanding liabilities and the amount of all
3 unearned premiums on unexpired risks and policies, it has a
4 surplus to an amount equalling 30% of its unearned premiums or
5 50% of its capital stock, whichever is greater.
6 (b) Penalties.--Any dividend declared and paid contrary to
7 this section shall make the directors of the company voting in
8 favor of the dividend jointly and severally liable to the
9 creditors of the company to the extent of the dividend. Each
10 stockholder receiving the dividend shall be liable to the
11 creditors of the company to the extent of the dividend received,
12 in addition to any other penalties prescribed by law.
13 § 5926. Authorized holdings of real estate.
14 A domestic stock fire, stock marine or stock fire and marine
15 insurance company shall not purchase, hold or convey real
16 estate, except as authorized for domestic stock casualty
17 insurance companies under section 5506 (relating to authorized
18 holdings of real estate).
19 § 5927. Procedure when capital impaired.
20 Any stock fire, stock marine and stock fire and marine
21 insurance company, receiving notice from the commissioner that
22 its capital is impaired, shall proceed as prescribed for stock
23 casualty insurance companies by section 5509 (relating to
24 procedure when capital impaired).
25 SUBCHAPTER C
26 MUTUAL COMPANIES
27 Sec.
28 5931. Licensing of foreign mutual companies.
29 5932. Rechartering of companies.
30 5933. Cash premium policies.
19850H1962B2642 - 853 -
1 5934. Cash premiums.
2 5935. Surplus.
3 § 5931. Licensing of foreign mutual companies.
4 (a) Old companies.--A foreign mutual fire, mutual marine or
5 mutual fire and marine insurance company which was originally
6 licensed to transact business in this Commonwealth prior to and
7 was transacting business in this Commonwealth on June 23, 1931,
8 may be relicensed to transact the class of business referred to
9 in section 3302(b)(1) (relating to authorized classes of
10 insurance) if it has a surplus over all liabilities, including
11 unearned premiums, computed in accordance with the law of this
12 Commonwealth of not less than $100,000, or has continuously
13 transacted business for not less than five years and has such a
14 surplus not less than $50,000. To be relicensed to transact the
15 classes of business referred to in section 3302(b)(2) and (3),
16 the surplus shall be not less than $250,000.
17 (b) More recent companies.--Any other foreign mutual fire,
18 mutual marine or mutual fire and marine insurance company may be
19 licensed and relicensed to transact the class of business
20 referred to in section 3302(b)(1) if it has a surplus over all
21 liabilities, including unearned premiums, computed in accordance
22 with the law of this Commonwealth of not less than $150,000. To
23 be licensed or relicensed to transact the classes of business
24 referred to:
25 (1) in either section 3302(b)(2) or (3), the surplus
26 shall be of not less than $200,000;
27 (2) in section 3302(b)(1) and in either section
28 3302(b)(2) or (3), the surplus shall be not less than
29 $350,000;
30 (3) in both section 3302(b)(2) and (3), the surplus
19850H1962B2642 - 854 -
1 shall be not less than $400,000; or
2 (4) in section 3302(b)(1), (2) and (3), the surplus
3 shall be not less than $550,000.
4 § 5932. Rechartering of companies.
5 Any domestic mutual fire or mutual fire and marine insurance
6 company, whose charter is about to expire, may call a special
7 meeting of the members. Notice of the object of this meeting
8 shall be given by advertisement for four weeks preceding, in at
9 least two daily or weekly newspapers published in the city or
10 county where the principal office of the company is located, or
11 by circular mailed to the address of each member. If at the
12 meeting two-thirds of the votes cast in person or by proxy favor
13 a resolution agreeing that the corporation shall hold its
14 charter subject to the provisions of the Constitution of
15 Pennsylvania, setting forth at length the sections of its
16 existing charter which it desires to retain and agreeing to be
17 subject to the provisions of this title so far as not
18 inconsistent with the charter, the resolution and the number of
19 votes cast for and against it at the special meeting shall be
20 stated in the records of the company. A certified copy of the
21 record shall be forwarded to the commissioner, who shall submit
22 the same to the Attorney General. If the Attorney General
23 approves the resolution, he shall certify his approval to the
24 Governor, who shall cause letters patent to issue certifying the
25 company as a corporation under this title.
26 § 5933. Cash premium policies.
27 Any domestic mutual fire insurance company organized prior to
28 May 1, 1876, having a surplus not less than the minimum capital
29 required for the organization of a domestic stock fire insurance
30 company and an unearned premium reserve computed upon the same
19850H1962B2642 - 855 -
1 basis as that required of domestic stock fire insurance
2 companies, may issue policies for a cash premium without any
3 contingent liability for assessment.
4 § 5934. Cash premiums.
5 Any domestic mutual fire insurance company, incorporated by a
6 special act of the General Assembly prior to May 1, 1876, and
7 having a surplus and unearned premium reserve as required in
8 section 5933 (relating to cash premium policies) may, instead of
9 collecting the deposit money as provided under its charter,
10 charge a cash premium in advance, on which no dividend or return
11 shall be due or accrue, other than return premiums on canceled
12 policies, if its charter provides:
13 (1) for a premium deposit, which shall remain as a
14 pledge for the performance of the depositor's covenants,
15 which deposit, under the provision of the charter, shall be
16 returned to the depositor at the expiration of the policy,
17 together with a proportional dividend of the profits after
18 deducting losses and incidental charges; and
19 (2) that the net profit, arising by interest or
20 otherwise, shall be ascertained yearly to every member in
21 proportion to his deposit for which the member shall have
22 credit on the company's books, payable at the cancellation of
23 the policy.
24 § 5935. Surplus.
25 The surplus of any domestic mutual fire insurance companies
26 issuing policies in accordance with section 5933 (relating to
27 cash premium policies) or 5934 (relating to cash premiums) shall
28 be held as a reserve for the payment of losses and expenses. In
29 the event of dissolution of the company, this surplus shall be
30 divided pro rata among the policyholders whose policies are in
19850H1962B2642 - 856 -
1 force at the time of dissolution, but no policyholder, other
2 than a loss claimant, shall receive more than the amount of the
3 unearned cash premium last paid to the company for the current
4 term of such policy. Any balance remaining shall escheat to the
5 Commonwealth.
6 CHAPTER 61
7 ELIGIBILITY FOR MOTOR VEHICLE INSURANCE
8 Sec.
9 6101. Definitions.
10 6102. General provisions.
11 6103. Insufficient grounds for failure to insure.
12 6104. Grounds for cancellation.
13 6105. Premium increase or surcharge.
14 6106. Notice of refusal.
15 6107. Exclusions.
16 6108. Information regarding refusal to insure.
17 6109. Request for review.
18 6110. Review procedure.
19 6111. Powers of commissioner.
20 6112. Penalty.
21 § 6101. Definitions.
22 The following words and phrases when used in this chapter
23 shall have the meanings given to them in this section unless the
24 context clearly indicates otherwise:
25 "Insurer." Any insurance entity authorized to transact the
26 business of automobile insurance in this Commonwealth.
27 "Nonpayment of premium." Failure of the named insured to
28 discharge when due any of his obligations in connection with the
29 payment of premiums on a policy, or any installment of the
30 premium, whether the premium is payable directly to the insurer
19850H1962B2642 - 857 -
1 or its agent or indirectly under any premium finance plan or
2 extension or credit.
3 "Policy." A policy delivered or issued for delivery in this
4 Commonwealth insuring a natural person as named insured or one
5 or more related individuals resident of the same household, and
6 under which the insured vehicles therein designated are of the
7 following types only:
8 (1) A motor vehicle of the private passenger or station
9 wagon type that is not used as a public or livery conveyance
10 for passengers and is not rented to others.
11 (2) Any other four-wheel motor vehicle with a gross
12 weight not exceeding 9,000 pounds which is not principally
13 used in the occupation, profession or business of the insured
14 other than farming.
15 "Renewal" or "to renew." The issuance and delivery by an
16 insurer of a policy superseding at the end of the policy period
17 a policy previously issued and delivered by the same insurer, if
18 the renewal policy provides types and limits of coverage at
19 least equal to those contained in the policy being superseded,
20 or the issuance and delivery of a certificate or notice
21 extending the term of a policy beyond its policy period or term
22 with types and limits of coverage at least equal to those
23 contained in the policy being extended.
24 § 6102. General provisions.
25 (a) Term of certain policies.--Any policy with a policy
26 period or term of less than 12 months or any period with no
27 fixed expiration date shall for purposes of this chapter be
28 considered as if written for successive policy periods or terms
29 of 12 months.
30 (b) Applicability to policies.--This chapter applies only to
19850H1962B2642 - 858 -
1 that portion of a policy providing bodily injury and property
2 damage liability, comprehensive and collision coverages and to
3 the provisions in the policy relating to medical payments and
4 uninsured motorists coverage.
5 § 6103. Insufficient grounds for failure to insure.
6 (a) Prohibited grounds.--An insurer shall not cancel or
7 refuse to write or renew a policy for one or more of the
8 following reasons:
9 (1) Age.
10 (2) Residence or operation of a motor vehicle in a
11 specific geographic area.
12 (3) Race.
13 (4) Color.
14 (5) Creed.
15 (6) National origin.
16 (7) Ancestry.
17 (8) Marital status.
18 (9) Sex.
19 (10) Lawful occupation (including military service).
20 (11) The refusal of another insurer to write a policy,
21 or the cancellation or refusal to renew an existing policy by
22 another insurer.
23 (12) Illness or permanent or temporary disability, where
24 the insured can medically document that the illness or
25 disability will not impair his ability to operate a motor
26 vehicle. Failure to provide this documentation shall be
27 proper reason for the insurer to amend the policy of the
28 named insured to exclude the disabled insured from coverage
29 under the policy while operating a motor vehicle after the
30 effective date of the policy amendment, but shall not be
19850H1962B2642 - 859 -
1 proper reason to cancel or refuse to write or renew the
2 policy. This paragraph does not affect the excluded
3 individual's eligibility for coverage under the named
4 insured's policy for any injury sustained while not operating
5 a motor vehicle. Illness or permanent or temporary disability
6 on the part of any insured shall not be proper reason for
7 canceling the policy of the named insured.
8 (13) Any accident which occurred under any of the
9 following circumstances:
10 (i) The motor vehicle was lawfully parked, except
11 that if the vehicle rolled from the parked position, any
12 accident shall be charged to the person who parked the
13 auto.
14 (ii) The applicant, owner or other resident operator
15 was reimbursed by, or on behalf of, a person who is
16 responsible for the accident or had a judgment against
17 such a person.
18 (iii) The vehicle was struck in the rear by another
19 vehicle and the applicant or other resident operator was
20 not convicted of a moving traffic violation in connection
21 with the accident.
22 (iv) The operator of the other vehicle involved in
23 the accident was convicted of a moving traffic violation,
24 and the applicant or resident operator was not convicted
25 of a moving traffic violation in connection with the
26 accident.
27 (v) The vehicle operated by the applicant or any
28 resident operator was struck by a "hit-and-run" vehicle,
29 if the accident was reported to the proper authority
30 within 24 hours by the applicant or resident operator.
19850H1962B2642 - 860 -
1 (vi) The accident involved damage by contact with
2 animals or fowl.
3 (vii) The accident involved physical damage caused
4 by flying gravel, missiles or falling objects.
5 (viii) The accident occurred when using the vehicle
6 in response to any emergency if the operator of the
7 vehicle at the time of the accident was a paid or
8 volunteer member of any police or fire department, first
9 aid squad or any law enforcement agency, but not after
10 the auto ceased to be used in response to the emergency.
11 (ix) The accident occurred more than 36 months prior
12 to the later of the inception of the insurance policy or
13 the upcoming anniversary date of the policy.
14 (14) Any claim under the comprehensive portion of the
15 policy unless the loss was intentionally caused by the
16 insured.
17 (15) Any one accident occurring within the 36-month
18 period prior to the upcoming anniversary date of the policy.
19 (b) Terminated agent within one year.--For a period 12
20 months after notice of termination given to an agent, an insurer
21 shall not cancel or refuse to renew existing policies written
22 through the terminated agent because of the termination, unless
23 the action could have been taken had the agency relationship
24 continued. An insurer shall pay commissions for the policies
25 that are continued or renewed through the terminated agent,
26 except where:
27 (1) the insurer retained ownership of the expirations of
28 such policies; or
29 (2) the agent has misappropriated funds or property of
30 the insurer, has failed to remit to the insurer funds due it
19850H1962B2642 - 861 -
1 promptly upon demand, has been terminated for insolvency,
2 abandonment or gross and willful misconduct or has had his
3 license suspended or revoked.
4 (c) Terminated agent after one year.--Subsequent to the 12-
5 month period after notice of termination given to an agent, an
6 insurer shall not cancel or refuse to renew existing policies
7 written through the terminated agent without offering to cover
8 the insured on a direct basis or refer the insured to one or
9 more new agents if the terminated agent could not find a
10 suitable insurer acceptable to the policyholder. The offer need
11 not be made if the insurer could have canceled or failed to
12 renew the policy had the agency relationship continued. If the
13 insurer retains ownership of the expirations of the policies,
14 the insurer is not required to offer a new agent.
15 (d) Accumulation of points.--An insurer shall not cancel or
16 refuse to renew a policy for two or fewer moving violations in
17 any jurisdiction or jurisdictions during a 24-month period when
18 the operator's record indicates that the named insured presently
19 bears five points or fewer under Title 75 (relating to
20 vehicles). However, this subsection does not apply under the
21 following conditions:
22 (1) All five points are incurred from one violation.
23 (2) The driver's license or motor vehicle registration
24 of the named insured is suspended or revoked.
25 (e) Other insureds.--The applicability of subsection (d) to
26 an individual, other than the named insured, who either is a
27 resident in the same household or who customarily operates a
28 vehicle insured under the policy shall be proper reason for the
29 insurer excluding the individual from coverage under the policy,
30 but not for canceling the policy.
19850H1962B2642 - 862 -
1 § 6104. Grounds for cancellation.
2 An insurer shall not cancel a policy except for one or more
3 of the following reasons:
4 (1) Nonpayment of premium.
5 (2) The driver's license or motor vehicle registration
6 of the named insured is under suspension or revocation during
7 the policy period. The applicability of this reason to one
8 who either is a resident in the same household or who
9 customarily operates a vehicle insured under the policy shall
10 be proper reason for the insurer excluding the individual
11 from coverage under the policy, but not for canceling the
12 policy.
13 (3) A determination that the insured has concealed a
14 fact, has made an allegation contrary to fact or has made a
15 misrepresentation of a fact if the fact concealed, alleged or
16 misrepresented was material to the acceptance of the risk by
17 the insurer.
18 § 6105. Premium increase or surcharge.
19 An insurer shall not increase an individual insured's premium
20 or assess a premium surcharge on the basis of any moving traffic
21 violation records, any revocation or suspension records or any
22 accident records, if the insured establishes that the records
23 are erroneous or inaccurate.
24 § 6106. Notice of refusal.
25 A cancellation or refusal to renew by an insurer of a policy
26 shall not be effective unless the insurer delivers or mails to
27 the named insured at the address shown in the policy a written
28 notice of the cancellation or refusal to renew. The notice
29 shall:
30 (1) Be approved as to form by the commissioner prior to
19850H1962B2642 - 863 -
1 use.
2 (2) State the date, not less than 30 days after the date
3 of such mailing or delivering, on which the cancellation or
4 refusal to renew shall become effective, except that the
5 effective date may be 15 days from the date of mailing or
6 delivery when it is being canceled or not renewed for the
7 reasons set forth in section 6104(1) or (2) (relating to
8 grounds for cancellation).
9 (3) State the specific reasons of the insurer for
10 cancellation or refusal to renew.
11 (4) Advise the insured of his right to request in
12 writing, within 20 days of the receipt of the notice of
13 cancellation or intention not to renew, that the commissioner
14 review the action of the insurer.
15 (5) Either in the notice or in an accompanying
16 statement, advise the insured of his possible eligibility for
17 insurance through the automobile assigned risk plan.
18 (6) Advise the insured that he must obtain automobile
19 insurance coverage or otherwise comply with Chapter 63
20 (relating to motor vehicle financial responsibility) if he
21 operates or registers a motor vehicle in this Commonwealth
22 and that the insured shall notify the Department of
23 Transportation that he has replaced such coverage.
24 § 6107. Exclusions.
25 This chapter does not apply:
26 (1) If the insurer has manifested its willingness to
27 renew by issuing or offering to issue a renewal policy,
28 certificate or other evidence of renewal, or has manifested
29 such intention by any other means.
30 (2) If the named insured has demonstrated by some overt
19850H1962B2642 - 864 -
1 action to the insurer or its agent that he wishes the policy
2 to be canceled or that he does not wish the policy to be
3 renewed.
4 (3) To any policy which has been in effect less than 60
5 days, unless it is a renewal policy, except that no insurer
6 shall decline to continue in force such a policy of
7 automobile insurance on the basis of the grounds set forth in
8 section 6103(a)(1) through (14) (relating to insufficient
9 grounds for failure to insure) and except that, if an insurer
10 cancels a policy in the first 60 days, the insurer shall
11 supply the insured with a written statement of the reason for
12 cancellation.
13 (4) To any policy issued under an automobile assigned
14 risk plan.
15 (5) To any policy insuring more than four automobiles.
16 (6) To any policy covering the hazards of operation of a
17 garage, automobile sales agency repair shop, service station
18 or public parking place.
19 § 6108. Information regarding refusal to insure.
20 (a) Immunity.--A cause of action shall not arise against the
21 commissioner, any insurer, the authorized representatives,
22 agents and employees of either or any firm, person or
23 corporation furnishing to the insurer information as to reasons
24 for cancellation or refusal to write or renew for making any
25 statement in complying with this chapter or for providing
26 information pertaining thereto.
27 (b) Notification to insured.--The insurer shall furnish the
28 insured the notification required by the Fair Credit Reporting
29 Act (Public Law 91-508, 15 U.S.C. § 1681 et seq.) at the time of
30 the cancellation or refusal to write or renew.
19850H1962B2642 - 865 -
1 (c) Records of insurer.--Each insurer shall maintain records
2 of the numbers of cancellations and refusals to write or renew
3 policies and the reasons therefor and shall supply to the
4 commissioner such information therefrom as he may request.
5 § 6109. Request for review.
6 (a) Cancellation or failure to renew.--Any insured may
7 within 20 days of the receipt by the insured of notice of
8 cancellation or notice of intention not to renew request the
9 commissioner in writing to review the action of the insurer.
10 (b) Refusal to write policy.--Any applicant for a policy who
11 is refused the policy by an insurer shall be given a written
12 notice of refusal to write by the insurer, which shall state the
13 specific reasons for the refusal. Within 20 days of the receipt
14 of the notice, the applicant may request the commissioner in
15 writing to review the action of the insurer.
16 § 6110. Review procedure.
17 (a) Notice of hearing.--If, upon receipt of a request for
18 review or if as a result of investigation, the commissioner has
19 good cause to believe that an insurer is violating this chapter,
20 the commissioner shall notify the insurer thereof and shall
21 review the matter to determine whether the cancellation or
22 refusal to renew or to write was in violation of this chapter.
23 He shall within 40 days of the receipt of the request either
24 order the policy written or reinstated or uphold the
25 cancellation or refusal to renew. If either of the parties
26 disputes the commissioner's findings, the party shall have the
27 right to a hearing. If a hearing is requested, the commissioner
28 shall immediately issue notice of the hearing, stating the time
29 and place, which shall not be less than 30 days from the date of
30 the notice.
19850H1962B2642 - 866 -
1 (b) Hearing procedure.--The hearing shall be held at the
2 time and place fixed for the hearing in the notice. The insurer
3 may show cause why an order should not be made by the
4 commissioner to cease and desist from acts constituting a
5 violation of this chapter. Upon good cause shown, the
6 commissioner shall permit any person to intervene, appear and be
7 heard at the hearing, in person or by counsel. The commissioner
8 may administer oaths, examine and cross-examine witnesses,
9 receive oral and documentary evidence and subpoena witnesses,
10 compel their attendance and require the production of books,
11 papers, records or other documents which he deems relevant to
12 the hearing. The commissioner shall cause a record to be kept of
13 all evidence and all proceedings at the hearing.
14 (c) Order.--Following the hearing, the commissioner shall
15 issue a written order resolving the factual issues presented at
16 the hearing and stating what remedial action, if any, is
17 required. The commissioner shall send a copy of the order to the
18 persons participating in the hearing. In the case of a
19 cancellation of or refusal to renew a policy, the policy shall
20 remain in effect until the conclusion of the review or the date
21 referred to in section 6106(2) (relating to notice of refusal),
22 whichever is later, except for review of cancellations by reason
23 of nonpayment of premium, in which case the policy shall
24 terminate as of the date provided in the notice under of section
25 6106(2), unless the cancellation or refusal to renew is upheld
26 or the policy reinstated.
27 (d) Applicability of Title 2.--The review by the
28 commissioner under this chapter shall not be subject to 2
29 Pa.C.S. Ch. 5 Subch. A (relating to practice and procedure of
30 Commonwealth agencies). The decision of the commissioner shall
19850H1962B2642 - 867 -
1 be subject to appeal in accordance with 2 Pa.C.S. Ch. 7 Subch. A
2 (relating to judicial review of Commonwealth agency action).
3 § 6111. Powers of commissioner.
4 (a) Regulations.--The commissioner shall promulgate
5 regulations necessary for the administration of this chapter.
6 (b) Filing fee.--The commissioner may provide in these
7 regulations for the establishment of a filing fee not exceeding
8 $15, to accompany the request for review. If the commissioner
9 decides the appeal in favor of the insured, the filing fee shall
10 be returned immediately and the fee shall be paid by the
11 insurer.
12 (c) Cease and desist order.--Upon a determination that this
13 chapter has been violated, the commissioner may issue an order
14 requiring the insurer to cease and desist from engaging in the
15 violation, and may enforce the order by an action for
16 injunction, regardless of whether the insurer is licensed by the
17 commissioner.
18 § 6112. Penalty.
19 Any individual or insurer who violates this chapter commits a
20 misdemeanor of the third degree and, upon conviction, shall be
21 sentenced to pay a fine not to exceed $5,000.
22 CHAPTER 63
23 MOTOR VEHICLE FINANCIAL RESPONSIBILITY
24 Subchapter
25 A. General Provisions
26 B. Motor Vehicle Liability Insurance First Party Benefits
27 C. Uninsured and Underinsured Motorist Coverage
28 D. Assigned Risk Plan
29 E. Assigned Claims Plan
30 F. Catastrophic Loss Trust Fund
19850H1962B2642 - 868 -
1 G. Nonpayment of Judgments
2 H. Proof of Financial Responsibility
3 I. Miscellaneous Provisions
4 SUBCHAPTER A
5 GENERAL PROVISIONS
6 Sec.
7 6301. Short title of chapter.
8 6302. Definitions.
9 6303. Applicability of chapter.
10 6304. Administration of chapter.
11 § 6301. Short title of chapter.
12 This chapter shall be known and may be cited as the Motor
13 Vehicle Financial Responsibility Law.
14 § 6302. Definitions.
15 The following words and phrases when used in this chapter
16 shall have the meanings given to them in this section unless the
17 context clearly indicates otherwise:
18 "Benefits" or "first party benefits." Medical benefits,
19 income loss benefits, accidental death benefits and funeral
20 benefits.
21 "Financial responsibility." The ability to respond in
22 damages for liability on account of accidents arising out of the
23 maintenance or use of a motor vehicle in the amount of $15,000
24 because of injury to one person in any one accident, in the
25 amount of $30,000 because of injury to two or more persons in
26 any one accident and in the amount of $5,000 because of damage
27 to property of others in any one accident. The financial
28 responsibility shall be in a form acceptable to the Department
29 of Transportation.
30 "Injury." Accidentally sustained bodily harm to an
19850H1962B2642 - 869 -
1 individual and that individual's illness, disease or death
2 resulting therefrom.
3 "Insured." Any of the following:
4 (1) An individual identified by name as an insured in a
5 policy of motor vehicle liability insurance.
6 (2) If residing in the household of the named insured:
7 (i) a spouse or other relative of the named insured;
8 or
9 (ii) a minor in the custody of either the named
10 insured or relative of the named insured.
11 "Insurer" or "insurance company." A motor vehicle liability
12 insurer subject to the requirements of this chapter.
13 "Self-insurer." An entity providing benefits and qualified
14 in the manner set forth in section 6387 (relating to self-
15 insurance).
16 "Underinsured motor vehicle." A motor vehicle for which the
17 limits of available liability insurance and self-insurance are
18 insufficient to pay losses and damages.
19 "Uninsured motor vehicle." Any of the following:
20 (1) A motor vehicle for which there is no liability
21 insurance or self-insurance applicable at the time of the
22 accident.
23 (2) A motor vehicle for which the insurance company
24 denies coverage or the insurance company is or becomes
25 involved in insolvency proceedings in any jurisdiction.
26 (3) An unidentified motor vehicle that causes an
27 accident resulting in injury provided the accident is
28 reported to the police or proper governmental authority and
29 claimant notifies his insurer within 30 days, or as soon as
30 practicable thereafter, that the claimant or his legal
19850H1962B2642 - 870 -
1 representative has a legal action arising out of the
2 accident.
3 § 6303. Applicability of chapter.
4 This chapter does not apply with respect to any motor vehicle
5 owned by the Federal Government.
6 § 6304. Administration of chapter.
7 (a) General rule.--Except as provided in subsection (b), the
8 Department of Transportation shall administer and enforce this
9 chapter and may make rules and regulations necessary for that
10 purpose.
11 (b) Insurance matters.--The commissioner shall administer
12 and enforce those provisions of this chapter as to matters under
13 its jurisdiction as determined by this chapter or other statute
14 and may make rules and regulations necessary for that purpose.
15 SUBCHAPTER B
16 MOTOR VEHICLE LIABILITY INSURANCE
17 FIRST PARTY BENEFITS
18 Sec.
19 6311. Required benefits.
20 6312. Availability of benefits.
21 6313. Source of benefits.
22 6314. Ineligible claimants.
23 6315. Availability of adequate limits.
24 6316. Payment of benefits.
25 6317. Stacking of benefits.
26 6318. Exclusion from benefits.
27 6319. Coordination of benefits.
28 6320. Subrogation.
29 6321. Statute of limitations.
30 6322. Preclusion of recovering required benefits.
19850H1962B2642 - 871 -
1 6323. Reporting requirements.
2 § 6311. Required benefits.
3 An insurer issuing or delivering liability insurance policies
4 covering any motor vehicle of the type required to be registered
5 under Title 75 (relating to vehicles), except recreational
6 vehicles not intended for highway use, motorcycles, motor-driven
7 cycles or motorized pedalcycles or like type vehicles,
8 registered and operated in this Commonwealth, shall include
9 coverage providing a medical benefit in the amount of $10,000,
10 an income loss benefit up to a monthly maximum of $1,000 up to a
11 maximum benefit of $5,000 and a funeral benefit in the amount of
12 $1,500, as defined in section 6312 (relating to availability of
13 benefits), with respect to injury arising out of the maintenance
14 or use of a motor vehicle. The income loss benefit provided
15 under this section may be expressly waived by the named insured
16 provided the named insured has no expectation of actual income
17 loss due to age, disability or lack of employment history.
18 § 6312. Availability of benefits.
19 An insurer issuing or delivering liability insurance policies
20 covering any motor vehicle required to be covered under section
21 6311 (relating to required benefits) shall make available for
22 purchase first party benefits with respect to injury arising out
23 of the maintenance or use of a motor vehicle as follows:
24 (1) Medical benefit.--Coverage to provide for reasonable
25 and necessary medical treatment and rehabilitative services,
26 including, but not limited to, hospital, dental, surgical,
27 psychiatric, psychological, osteopathic, ambulance,
28 chiropractic, licensed physical therapy, nursing services,
29 vocational rehabilitation and occupational therapy, speech
30 pathology and audiology, optometric services, medications,
19850H1962B2642 - 872 -
1 medical supplies and prosthetic devices, all without
2 limitation as to time in cases where within 18 months from
3 the date of the accident causing injury, it is ascertainable
4 with reasonable medical probability that further expenses may
5 be incurred as a result of the injury. Benefits under this
6 paragraph may include any nonmedical remedial care and
7 treatment rendered in accordance with a recognized religious
8 method of healing.
9 (2) Income loss benefit.--Includes the following:
10 (i) Eighty percent of actual loss of gross income.
11 (ii) Reasonable expenses actually incurred for
12 hiring a substitute to perform self-employment services
13 thereby mitigating loss of gross income or for hiring
14 special help thereby enabling a person to work and
15 mitigate loss of gross income.
16 Income loss does not include loss of expected income for any
17 period following the death of an individual or expenses
18 incurred for services performed following the death of an
19 individual. Income loss shall not commence until five working
20 days have been lost after the date of the accident.
21 (3) Accidental death benefit.--A death benefit paid to
22 the personal representative of the insured, if injury
23 resulting from a motor vehicle accident causes death within
24 24 months from the date of the accident.
25 (4) Funeral benefit.--Expenses directly related to the
26 funeral, burial, cremation or other form of disposition of
27 the remains of a deceased individual, incurred as a result of
28 the death of the individual as a result of the accident and
29 within 24 months from the date of the accident.
30 (5) Combination benefit.--A combination of benefits
19850H1962B2642 - 873 -
1 described in paragraphs (1) through (4) as an alternative to
2 the separate purchase of those benefits.
3 § 6313. Source of benefits.
4 (a) General rule.--Except as provided in section 6314
5 (relating to ineligible claimants), a person who suffers injury
6 arising out of the maintenance or use of a motor vehicle shall
7 recover first party benefits against applicable insurance
8 coverage in the following order of priority:
9 (1) For a named insured, the policy on which he is the
10 named insured.
11 (2) For an insured, the policy covering the insured.
12 (3) For the occupants of an insured motor vehicle, the
13 policy on that motor vehicle.
14 (4) For a person who is not the occupant of a motor
15 vehicle, the policy on any motor vehicle involved in the
16 accident. For the purpose of this paragraph, a parked and
17 unoccupied motor vehicle is not deemed to be involved in an
18 accident unless it was parked so as to cause unreasonable
19 risk of injury.
20 (b) Multiple sources of equal priority.--The insurer against
21 whom a claim is asserted first under the priorities set forth in
22 subsection (a) shall process and pay the claim as if wholly
23 responsible. The insurer may thereafter recover contribution pro
24 rata from any other insurer for the benefits paid and the costs
25 of processing the claim. If contribution is sought among
26 insurers responsible under subsection (a)(4), proration shall be
27 based on the number of involved motor vehicles.
28 § 6314. Ineligible claimants.
29 An owner of a currently registered motor vehicle who does not
30 have financial responsibility or an operator or occupant of a
19850H1962B2642 - 874 -
1 recreational vehicle not intended for highway use, motorcycle,
2 motor-driven cycle, motorized pedalcycle or like type vehicle
3 required to be registered under Title 75 (relating to vehicles)
4 cannot recover first party benefits.
5 § 6315. Availability of adequate limits.
6 (a) General rule.--An insurer shall make available for
7 purchase first party benefits as follows:
8 (1) For medical benefits, up to at least $100,000.
9 (2) For income loss benefits, up to at least $2,500 per
10 month up to a maximum benefit of at least $50,000.
11 (3) For accidental death benefits, up to at least
12 $25,000.
13 (4) For funeral benefits, $2,500.
14 (5) For combination of benefits enumerated in paragraphs
15 (1) through (4) and subject to a limit on the accidental
16 death benefit of up to $25,000 and a limit on the funeral
17 benefit of $2,500, up to at least $277,500 of benefits in the
18 aggregate or benefits payable up to three years from the date
19 of the accident, whichever occurs first.
20 (b) Higher or lower limits and additional benefits.--
21 Insurers may make available higher or lower limits or benefits
22 in addition to those enumerated in subsection (a).
23 (c) Restriction on providing first party benefits.--An
24 insurer shall not issue or deliver a policy providing first
25 party benefits in accordance with this subchapter unless the
26 policy also contains coverage for liability in amounts at least
27 equal to the limits required for financial responsibility.
28 § 6316. Payment of benefits.
29 Benefits are overdue if not paid within 30 days after the
30 insurer receives reasonable proof of the amount of the benefits.
19850H1962B2642 - 875 -
1 If reasonable proof is not supplied as to all benefits, the
2 portion supported by reasonable proof is overdue if not paid
3 within 30 days after the proof is received by the insurer.
4 Overdue benefits shall bear interest at the rate of 12% a year
5 from the date the benefits become due. If the insurer is found
6 to have acted in an unreasonable manner in refusing to pay the
7 benefits when due, the insurer shall pay, in addition to the
8 benefits owed and the interest thereon, a reasonable attorney
9 fee based upon actual time expended.
10 § 6317. Stacking of benefits.
11 First party benefits shall not be increased by stacking the
12 limits of coverage of:
13 (1) multiple motor vehicles covered under the same
14 policy of insurance; or
15 (2) multiple motor vehicle policies covering the
16 individual for the same loss.
17 § 6318. Exclusion from benefits.
18 (a) General rule.--An insurer shall exclude from benefits
19 any insured, or his personal representative, under a policy
20 described in section 6311 (relating to required benefits) or
21 6312 (relating to availability of benefits), when the conduct of
22 the insured contributed to the injury sustained by the insured
23 in any of the following ways:
24 (1) While intentionally injuring himself or another or
25 attempting to intentionally injure himself or another.
26 (2) While committing a felony.
27 (3) While seeking to elude lawful apprehension or arrest
28 by a law enforcement official.
29 (b) Conversion of vehicle.--A person who knowingly converts
30 a motor vehicle is ineligible to receive first party benefits
19850H1962B2642 - 876 -
1 from any source other than a policy of insurance under which he
2 is an insured for any injury arising out of the maintenance or
3 use of the converted vehicle.
4 (c) Named driver exclusion.--An insurer may exclude any
5 insured or his personal representative from benefits under a
6 policy described in section 6311 or 6312 when the insured is
7 excluded from coverage while operating a motor vehicle in
8 accordance with Chapter 61 (relating to eligibility for motor
9 vehicle insurance).
10 § 6319. Coordination of benefits.
11 (a) General rule.--Except for workmen's compensation, a
12 policy of insurance issued or delivered pursuant to this
13 subchapter shall be primary. Any program, group contract or
14 other arrangement for payment of benefits such as described in
15 section 6311 (relating to required benefits), 6312(1) and (2)
16 (relating to availability of benefits) or 6315 (relating to
17 availability of adequate limits) shall be construed to contain a
18 provision that all benefits provided therein shall be in excess
19 of and not in duplication of any valid and collectible first
20 party benefits provided under section 6311, 6312 or 6315 or
21 workmen's compensation.
22 (b) Definition.--As used in this section the term "program,
23 group contract or other arrangement" includes, but is not
24 limited to, benefits payable by a hospital plan corporation or a
25 professional health service corporation subject to Chapter 75
26 (relating to hospital plan corporations) or 77 (relating to
27 professional health services plan corporations).
28 § 6320. Subrogation.
29 In actions arising out of the maintenance or use of a motor
30 vehicle, there shall be no right of subrogation or reimbursement
19850H1962B2642 - 877 -
1 from a claimant's tort recovery with respect to workmen's
2 compensation benefits, benefits available under section 6311
3 (relating to required benefits), 6312 (relating to availability
4 of benefits) or 6315 (relating to availability of adequate
5 limits) or benefits in lieu thereof paid or payable under
6 section 6319 (relating to coordination of benefits).
7 § 6321. Statute of limitations.
8 (a) General rule.--If benefits have not been paid, an action
9 for first party benefits shall be commenced within four years
10 from the date of the accident giving rise to the claim. If first
11 party benefits have been paid, an action for further benefits
12 shall be commenced within four years from the date of the last
13 payment. The benefits claimed in the action may not include
14 expenses incurred more than four years before the date the
15 action is commenced.
16 (b) Minors.--For minors entitled to benefits described in
17 section 6311 (relating to required benefits) or 6312 (relating
18 to availability of benefits), an action for benefits shall be
19 commenced within four years from the date on which the injured
20 minor attains 18 years of age.
21 § 6322. Preclusion of recovering required benefits.
22 In any action for damages against a tortfeasor arising out of
23 the maintenance or use of a motor vehicle, a person who is
24 eligible to receive benefits under the coverages set forth in
25 section 6311 (relating to required benefits) may not plead,
26 introduce into evidence or recover the amount of benefits paid
27 or payable under section 6311.
28 § 6323. Reporting requirements.
29 Beginning December 31, 1986, and each year thereafter, each
30 insurance company writing automobile insurance in this
19850H1962B2642 - 878 -
1 Commonwealth shall file with the commissioner the number of its
2 insureds, the number of its insureds who have purchased first
3 party medical benefits in excess of the minimum required by
4 section 6311 (relating to required benefits) and the number of
5 insureds who have purchased first party medical benefits in the
6 amount of $100,000. The commissioner shall furnish this
7 information to the General Assembly annually.
8 SUBCHAPTER C
9 UNINSURED AND UNDERINSURED MOTORIST COVERAGE
10 Sec.
11 6331. Scope and amount of coverage.
12 6332. Limits of coverage.
13 6333. Priority of recovery.
14 6334. Request for lower or higher limits of coverage.
15 6335. Workmen's compensation benefits.
16 6336. Coverage in excess of required amounts.
17 § 6331. Scope and amount of coverage.
18 (a) General rule.--A motor vehicle liability insurance
19 policy shall not be delivered or issued for delivery in this
20 Commonwealth, with respect to any motor vehicle registered or
21 principally garaged in this Commonwealth, unless uninsured
22 motorist and underinsured motorist coverages are provided
23 therein or supplemental thereto in amounts equal to the bodily
24 injury liability coverage except as provided in section 6334
25 (relating to request for lower or higher limits of coverage).
26 (b) Uninsured motorist coverage.--Uninsured motorist
27 coverage shall provide protection for persons who suffer injury
28 arising out of the maintenance or use of a motor vehicle and are
29 legally entitled to recover damages therefor from owners or
30 operators of uninsured motor vehicles.
19850H1962B2642 - 879 -
1 (c) Underinsured motorist coverage.--Underinsured motorist
2 coverage shall provide protection for persons who suffer injury
3 arising out of the maintenance or use of a motor vehicle and are
4 legally entitled to recover damages therefor from owners or
5 operators of underinsured motor vehicles.
6 (d) Limitation on recovery.--A person who recovers damages
7 under uninsured motorist coverage or coverages cannot recover
8 damages under underinsured motorist coverage or coverages for
9 the same accident.
10 § 6332. Limits of coverage.
11 Coverages offered under section 6331 (relating to scope and
12 amount of coverage) shall be written for the same limits. A
13 change shall not be made in the limits of one of these coverages
14 without an equal change in the limits of the other coverage.
15 § 6333. Priority of recovery.
16 Where multiple policies apply, payment shall be made in the
17 following order of priority:
18 (1) A policy covering a motor vehicle occupied by the
19 injured person at the time of the accident.
20 (2) A policy covering a motor vehicle not involved in
21 the accident with respect to which the injured person is an
22 insured.
23 § 6334. Request for lower or higher limits of coverage.
24 A named insured may request in writing the issuance of
25 coverages under section 6331 (relating to scope and amount of
26 coverage) in amounts less than the limits of liability for
27 bodily injury, but not less than the amounts required by this
28 chapter for bodily injury. If the named insured has selected
29 uninsured and underinsured motorist coverage in connection with
30 a policy previously issued to him by the same insurer under
19850H1962B2642 - 880 -
1 section 6331, the coverages offered need not be provided in
2 excess of the limits of liability previously issued for
3 uninsured and underinsured motorist coverage unless the named
4 insured requests in writing higher limits of liability for those
5 coverages.
6 § 6335. Workmen's compensation benefits.
7 The coverages required by this subchapter shall not be made
8 subject to an exclusion or reduction in amount because of any
9 workmen's compensation benefits payable as a result of the same
10 injury.
11 § 6336. Coverage in excess of required amounts.
12 The coverages provided under this subchapter may be offered
13 by insurers in amounts higher than those required by this
14 chapter but may not be greater than the limits of liability
15 specified in the bodily injury liability provisions of the
16 insured's policy.
17 SUBCHAPTER D
18 ASSIGNED RISK PLAN
19 Sec.
20 6341. Establishment of assigned risk plan.
21 6342. Scope of assigned risk plan.
22 6343. Rates.
23 6344. Termination of policies.
24 § 6341. Establishment of assigned risk plan.
25 The commissioner shall, after consultation with the insurers
26 licensed to write motor vehicle liability insurance in this
27 Commonwealth, adopt a reasonable assigned risk plan for the
28 equitable apportionment among those insurers of applicants for
29 motor vehicle liability insurance who are entitled to procure
30 insurance through ordinary methods, but are unable to do so.
19850H1962B2642 - 881 -
1 When the plan has been adopted, all motor vehicle liability
2 insurers shall subscribe thereto and shall participate in the
3 plan. The plan may provide reasonable means for the transfer of
4 individuals insured thereunder into the ordinary market, at the
5 same or lower rates, pursuant to regulations established by the
6 department.
7 § 6342. Scope of assigned risk plan.
8 The assigned risk plan shall include rules for the
9 classification of risks and rates therefor and shall provide for
10 the installment payment of premiums subject to customary terms
11 and conditions.
12 § 6343. Rates.
13 All rates for the assigned risk plan shall be subject to the
14 provisions of Chapter 19 (relating to insurance rates) which are
15 applicable to the classes of insurance described in section
16 1902(a) (relating to scope of chapter) and shall not be
17 inadequate, excessive or unfairly discriminatory.
18 § 6344. Termination of policies.
19 Cancellation, refusal to renew and other termination of
20 policies issued under the assigned risk plan shall be in
21 accordance with the rules of the plan.
22 SUBCHAPTER E
23 ASSIGNED CLAIMS PLAN
24 Sec.
25 6351. Organization of assigned claims plan.
26 6352. Eligible claimants.
27 6353. Benefits available.
28 6354. Additional coverage.
29 6355. Coordination of benefits.
30 6356. Subrogation.
19850H1962B2642 - 882 -
1 6357. Statute of limitations.
2 § 6351. Organization of assigned claims plan.
3 Insurers providing financial responsibility as required by
4 law shall organize and maintain an assigned claims plan, subject
5 to approval and regulation by the commissioner and adopt rules
6 for the operation and for the assessment of costs on a fair and
7 equitable basis.
8 § 6352. Eligible claimants.
9 (a) General rule.--A person may recover benefits from the
10 assigned claims plan if the person:
11 (1) is a resident of this Commonwealth;
12 (2) is injured as the result of a motor vehicle accident
13 occurring in this Commonwealth;
14 (3) is not an owner of a motor vehicle required to be
15 registered under 75 Pa.C.S. Ch. 13 (relating to registration
16 of vehicles);
17 (4) is not the operator or occupant of a motor vehicle
18 owned by the Federal Government;
19 (5) is not the operator or occupant of a motor vehicle
20 owned by a self-insurer or by an individual or entity who or
21 which is immune from liability or is not required to provide
22 benefits or uninsured and underinsured motorist coverage;
23 (6) is otherwise not entitled to receive any first party
24 benefits under section 6311 (relating to required benefits)
25 or 6312 (relating to availability of benefits) applicable to
26 the injury arising from the accident; and
27 (7) is not the operator or occupant of a recreational
28 vehicle not intended for highway use, motorcycle, motor-
29 driven cycle or motorized pedalcycle or other like type
30 vehicle required to be registered under Title 75 (relating to
19850H1962B2642 - 883 -
1 vehicles) and involved in the accident.
2 (b) Grounds for ineligibility.--A person otherwise
3 qualifying as an eligible claimant under subsection (a) may
4 nevertheless not recover benefits from the assigned claims plan
5 if that person contributed to his own injury in any of the
6 following ways:
7 (1) While intentionally injuring himself or another or
8 attempting to intentionally injure himself or another.
9 (2) While committing a felony.
10 (3) While seeking to elude lawful apprehension or arrest
11 by a law enforcement official.
12 (4) While knowingly converting a motor vehicle.
13 § 6353. Benefits available.
14 An eligible claimant may recover medical benefits, as
15 described in section 6312(1) (relating to availability of
16 benefits), up to a maximum of $5,000. An income loss benefit or
17 accidental death benefit shall not be payable under this
18 subchapter. Funeral expenses, as described in section 6312(4),
19 in the amount of $1,500 shall be recoverable as an offset to the
20 maximum amount of medical benefits available under this section.
21 § 6354. Additional coverage.
22 An eligible claimant who has no other source of applicable
23 uninsured motorist coverage and is otherwise entitled to recover
24 in an action in tort against a party who has failed to comply
25 with this chapter may recover for losses or damages suffered as
26 a result of the injury up to $15,000 subject to an aggregate
27 limit for all claims arising out of any one motor vehicle
28 accident of $30,000. If a claimant recovers medical benefits
29 under section 6353 (relating to benefits available), the amount
30 of medical benefits recovered or recoverable up to $5,000 shall
19850H1962B2642 - 884 -
1 be set off against any amount recoverable under this section.
2 § 6355. Coordination of benefits.
3 (a) Workmen's compensation.--All benefits, less reasonably
4 incurred collection costs, that an eligible claimant receives or
5 is entitled to receive from workmen's compensation and from any
6 other like source under local, state or Federal law shall be
7 subtracted from any benefits available in section 6353 (relating
8 to benefits available) unless the law authorizing or providing
9 for those benefits makes them excess or secondary to the
10 benefits payable under this subchapter.
11 (b) Accident and health benefits.--All benefits an eligible
12 claimant receives or is entitled to receive as a result of
13 injury from any available source of accident and health benefits
14 shall be subtracted from those benefits available in section
15 6353.
16 § 6356. Subrogation.
17 The assigned claims plan or its assignee may, in accordance
18 with the tort liability law of this Commonwealth, recover
19 reimbursement for benefits or coverages paid, loss adjustment
20 costs and any other sums paid to an eligible claimant under this
21 subchapter.
22 § 6357. Statute of limitations.
23 (a) General rule.--An action by an eligible claimant to
24 recover benefits or coverages from the assigned claims plan
25 shall be commenced within four years from the date of the
26 accident.
27 (b) Minors.--For minors entitled to benefits under section
28 6353 (relating to benefits available) or 6354 (relating to
29 additional coverage), an action to recover these benefits or
30 coverages shall be commenced within four years from the date on
19850H1962B2642 - 885 -
1 which the injured minor attains 18 years of age.
2 SUBCHAPTER F
3 CATASTROPHIC LOSS TRUST FUND
4 Sec.
5 6361. Definitions.
6 6362. Funding.
7 6363. Enforcement.
8 6364. Catastrophic Loss Trust Fund.
9 6365. Catastrophic Loss Trust Fund Board.
10 6366. Benefits.
11 6367. Annual reports.
12 6368. Appeals.
13 6369. Miscellaneous provisions.
14 § 6361. Definitions.
15 The following words and phrases when used in this subchapter
16 shall have the meanings given to them in this section unless the
17 context clearly indicates otherwise:
18 "Administrator." The administrator designated by the
19 Catastrophic Loss Trust Fund Board.
20 "Board." The Catastrophic Loss Trust Fund Board.
21 "Catastrophic loss." An injury, arising out of the
22 maintenance or use of a motor vehicle, for which the reasonable
23 and necessary expenses for medical treatment and rehabilitative
24 services, as described in section 6312(1) (relating to
25 availability of benefits), exceed $100,000.
26 "Catastrophic loss benefit." Payments by the Catastrophic
27 Loss Trust Fund for those reasonable and necessary expenses only
28 for medical treatment and rehabilitative services which, as
29 described in section 6312(1), exceed $100,000, subject to the
30 limitations provided in section 6366 (relating to benefits).
19850H1962B2642 - 886 -
1 Catastrophic loss benefits shall not duplicate any other
2 payments for medical treatment and rehabilitative services.
3 "Department." The Department of Transportation.
4 "Eligible claimant." Except as provided in the definition of
5 ineligible claimant, includes a resident of this Commonwealth
6 who suffers injury arising out of the maintenance or use of a
7 motor vehicle in the United States, its territories or
8 possessions and Canada. The estate of an eligible claimant shall
9 be entitled to receive catastrophic loss benefits pursuant to
10 section 6366 to the extent that financial obligations for
11 reasonable and necessary medical treatment and rehabilitative
12 services were incurred by the eligible claimant prior to the
13 death of that person.
14 "Executive director." The executive director of the
15 Catastrophic Loss Trust Fund Board.
16 "Fund." The Catastrophic Loss Trust Fund.
17 "Fund charge." The fund charge established under this
18 subchapter.
19 "Ineligible claimant." Any of the following:
20 (1) A person who is the owner of a motor vehicle who has
21 not complied with the registration requirements of 75 Pa.C.S.
22 Ch. 13 (relating to registration of vehicles).
23 (2) A person who is the driver or occupant of a
24 recreational vehicle not intended for highway use, a
25 motorcycle, a motorized pedalcycle, a motor-driven cycle or
26 like type vehicle required to be registered under Title 75
27 (relating to vehicles), but not subject to the charge levied
28 in section 6362 (relating to funding).
29 "Manager." The manager designated by the Catastrophic Loss
30 Trust Fund Board.
19850H1962B2642 - 887 -
1 § 6362. Funding.
2 The Catastrophic Loss Trust Fund shall be funded by levying
3 an initial charge of $5 upon all motor vehicles required to be
4 registered under 75 Pa.C.S. Ch. 13 (relating to registration of
5 vehicles) except trailers, recreational vehicles not intended
6 for highway use, motorcycles, motor-driven cycles, motorized
7 pedalcycles or like type vehicles. This charge shall be remitted
8 to an insurance company or other party as designated by the
9 commissioner. Upon receipt of the charge, the insurance company
10 or other designated party shall remit it to the commissioner for
11 deposit in the trust fund. The Catastrophic Loss Trust Fund
12 Board shall, by regulation, determine by January 1 of each
13 calendar year the amount of the fund charge for each
14 registration year subsequent to the initial registration year
15 and shall notify the commissioner who shall notify the insurance
16 companies or other designated parties of the amount of the
17 charge.
18 § 6363. Enforcement.
19 The Department of Transportation shall refuse registration or
20 renewal or transfer of registration to the owner of any motor
21 vehicle to be charged under section 6362 (relating to funding)
22 until there is proof that the charge was paid.
23 § 6364. Catastrophic Loss Trust Fund.
24 (a) Establishment.--A Catastrophic Loss Trust Fund shall be
25 established to provide funds necessary to pay catastrophic loss
26 benefits.
27 (b) Composition.--The fund shall be composed of moneys
28 contributed under section 6362 (relating to funding) and funds
29 earned by the investment and reinvestment of such moneys. The
30 fund shall be held in trust, be deposited in a separate account
19850H1962B2642 - 888 -
1 and be the exclusive source of funding for the payment of
2 catastrophic loss benefits and the administration of the fund.
3 (c) Separation from General Fund and Motor License Fund.--
4 The fund and all income earned by it shall not become part of
5 the General Fund or Motor License Fund, and no obligations or
6 expense of or claim against the fund shall constitute a debt of
7 the Commonwealth or a charge against the General Fund or Motor
8 License Fund.
9 (d) Expenses in collecting fund charge.--Any expense
10 incurred by the Commonwealth in the collection of the fund
11 charge shall be paid by the fund. The commissioner may determine
12 a formula to provide for the reimbursement by the fund for
13 expenses incurred by insurance companies or others in collecting
14 the fund charge.
15 § 6365. Catastrophic Loss Trust Fund Board.
16 (a) Composition.--The fund shall be under the general
17 supervision of a board of directors. The board shall be a
18 departmental administrative board in the Insurance Department
19 and shall be composed of nine persons as follows:
20 (1) Four members of the General Assembly appointed for
21 two years as follows:
22 (i) One appointed by the Majority Leader of the
23 Senate.
24 (ii) One appointed by the Minority Leader of the
25 Senate.
26 (iii) One appointed by the Majority Leader of the
27 House of Representatives.
28 (iv) One appointed by the Minority Leader of the
29 House of Representatives.
30 (2) Four public members appointed by the Governor for
19850H1962B2642 - 889 -
1 two years.
2 (3) The commissioner, who shall serve as chairman.
3 (b) Compensation.--Public members of the board shall receive
4 no compensation for their services but shall be reimbursed from
5 the fund for reasonable expenses incurred in carrying out their
6 duties.
7 (c) Powers and duties.--
8 (1) The board shall employ and fix the compensation of
9 an executive director who shall carry out the decisions of
10 the board. The executive director in consultation with the
11 commissioner and subject to the approval of the board shall
12 promulgate rules and regulations necessary to carry out the
13 purposes of the fund.
14 (2) The board shall contract with an administrator,
15 which shall be a person approved as qualified by the
16 commissioner to provide eligible claimants with catastrophic
17 loss benefits. The contract shall not be for a term in excess
18 of two years.
19 (3) The board shall contract with a manager who shall be
20 a person approved as qualified by the commissioner and the
21 State Treasurer to manage the moneys of the fund including
22 their investment and reinvestment, subject to the regulations
23 of the fund.
24 (4) The board shall contract for providers of other
25 professional services, including, but not limited to,
26 accountants, quality control auditors and actuaries,
27 necessary to ensure contract compliance by the administrator
28 and manager, and determine future fund charges.
29 (5) The board may purchase on behalf of the fund
30 insurance and reinsurance as necessary to preserve the
19850H1962B2642 - 890 -
1 financial solvency of the fund.
2 (6) Annually, the board shall consult with the
3 administrator, the manager and an actuary to determine the
4 fund charge. The charge shall be sufficient to ensure that
5 the fund is able to pay all claims and expenses for the
6 succeeding year and to develop actuarily sound reserves for
7 incurred claims.
8 (d) Duties of executive director.--The executive director
9 shall perform the following duties:
10 (1) Receive all claims for catastrophic loss benefits,
11 forward them to the administrator for handling and monitor
12 their progress.
13 (2) Assist any party with whom the board has contracted
14 under this section in the performance of its duties.
15 (3) Establish a program to assure continuing publicity
16 to the residents of this Commonwealth with respect to the
17 existence of the fund, the coverages afforded thereby and the
18 manner of the presentation of claims thereto.
19 (4) Employ, subject to the approval of the board,
20 clerical staff as necessary to perform his duties.
21 (e) Duties of administrator.--The administrator shall
22 perform the following duties:
23 (1) Determine the eligibility of the claimant, upon
24 receipt of a claim for catastrophic loss benefits.
25 (2) Establish a mechanism whereby payments to the
26 provider for reasonable and necessary medical treatment and
27 rehabilitative services shall be promptly made in amounts not
28 in excess of the limitations set forth in this subchapter.
29 (3) Evaluate, not less than annually, the medical
30 treatment and rehabilitative services being provided eligible
19850H1962B2642 - 891 -
1 claimants to assure that these represent the most prudent
2 expenditure of funds.
3 (f) Duties of manager.--The manager shall accept all moneys
4 collected for the fund and may invest and reinvest the moneys of
5 the fund in the type of investments and in a manner as
6 determined by the commissioner based upon investments by law and
7 investment policies for similar fiduciaries.
8 § 6366. Benefits.
9 (a) General rule.--Subject to the limitations set forth in
10 subsection (b), the Catastrophic Loss Trust Fund shall provide
11 catastrophic loss benefits to eligible claimants only for the
12 payment of expenses for medical treatment and rehabilitative
13 services in excess of $100,000.
14 (b) Maximum benefit.--The maximum catastrophic loss benefit
15 which shall be paid by the fund on behalf of any one eligible
16 claimant shall be $50,000 a year and $1,000,000 lifetime
17 aggregate. During the first 18 months of eligibility, the
18 administrator may approve payments on behalf of a claimant
19 without regard to the $50,000 a year limit but subject to the
20 $1,000,000 lifetime aggregate.
21 (c) Effect of other benefits.--Except for workmen's
22 compensation, catastrophic loss benefits paid or payable by the
23 fund shall be primary to any other available source of accident
24 or health benefits including any program, group contract or
25 other private or public source of benefits unless the law
26 authorizing or providing those benefits makes the benefits
27 primary to the benefits provided under this subchapter.
28 (d) Structured settlements.--The administrator may enter
29 into structured settlements to pay benefits under this
30 subchapter. Where it appears the settlement will be both cost
19850H1962B2642 - 892 -
1 effective to the fund and in the best interest of the claimant,
2 the restrictions in subsection (b) shall not apply to this
3 subsection, but the cost of the structured settlement shall not
4 exceed the present value of the future annual payments up to the
5 maximum lifetime aggregate benefit remaining calculated at 6%
6 simple interest.
7 (e) Preclusion of recovering benefits.--In any action for
8 damages against a tortfeasor arising out of the maintenance or
9 use of a motor vehicle, a person who is eligible to receive
10 catastrophic loss benefits shall not plead, introduce into
11 evidence or recover the amount of medical and rehabilitative
12 expenses for which catastrophic loss benefits were paid or are
13 payable.
14 (f) Subrogation.--There shall be no subrogation or
15 reimbursement from a claimant's tort recovery with respect to
16 catastrophic loss benefits.
17 § 6367. Annual reports.
18 By March 1 of each year, the commissioner shall prepare and
19 provide to the Governor and to the General Assembly a written
20 report of the status and activities of the Catastrophic Loss
21 Trust Fund. In its second annual report and in every second
22 annual report thereafter, the commissioner shall include in this
23 report findings and recommendations with respect to the
24 operation of the fund and the actuarial soundness of the fund.
25 Each annual report shall also include an audit by the Auditor
26 General of the amounts paid to each eligible person so as to
27 avoid duplication, error or fraud.
28 § 6368. Appeals.
29 When any person making a claim for benefits from the
30 Catastrophic Loss Trust Fund disputes a determination of the
19850H1962B2642 - 893 -
1 administrator concerning eligibility for benefits, allowance of
2 benefits or otherwise, the person may request that the
3 commissioner review the determination of the administrator. The
4 commissioner shall provide the person so claiming and the
5 administrator the opportunity to present statements or other
6 documents and, at the election of either of these individuals,
7 the opportunity for a hearing pursuant to Title 2 (relating to
8 administrative law and procedure).
9 § 6369. Miscellaneous provisions.
10 (a) Sunset review.--This subchapter shall be subject to
11 periodic evaluation, review and termination or continuation
12 under the act of December 22, 1981 (P.L.508, No.142), known as
13 the Sunset Act, every six years commencing with an initial
14 termination date of December 31, 1990.
15 (b) Nonseverability.--The provisions of this subchapter are
16 nonseverable. If any provision of this subchapter or its
17 application to any person or circumstance is held invalid, the
18 remaining provisions or applications of this subchapter are
19 void.
20 SUBCHAPTER G
21 NONPAYMENT OF JUDGMENTS
22 Sec.
23 6371. Court reports on nonpayment of judgments.
24 6372. Suspension for nonpayment of judgments.
25 6373. Duration of suspension.
26 6374. Satisfaction of judgments.
27 6375. Installment payment of judgments.
28 § 6371. Court reports on nonpayment of judgments.
29 (a) General rule.--Whenever any person fails within 60 days
30 to satisfy any judgment arising from a motor vehicle accident,
19850H1962B2642 - 894 -
1 the judgment creditor may forward to the Department of
2 Transportation a certified copy of the judgment.
3 (b) Notice to state of nonresident defendant.--If the
4 defendant named in any certified copy of a judgment reported to
5 the Department is a nonresident, the department shall transmit a
6 certified copy of the judgment to the official in charge of the
7 issuance of licenses and registration certificates of the State
8 of which the defendant is a resident.
9 § 6372. Suspension for nonpayment of judgments.
10 (a) General rule.--The department, upon receipt of a
11 certified copy of a judgment, shall suspend the operating
12 privilege of each person against whom the judgment was rendered
13 except as otherwise provided in this section and in section 6375
14 (relating to installment payment of judgments).
15 (b) Nonsuspension with consent of judgment creditor.--If the
16 judgment creditor consents in writing, in such form as the
17 department may prescribe, that the judgment debtor's operating
18 privilege be retained or restored, the department shall not
19 suspend or shall restore until the consent is revoked in
20 writing, notwithstanding default in the payment of the judgment
21 or of any installment thereof prescribed in section 6375,
22 provided the judgment debtor furnishes proof of financial
23 responsibility.
24 (c) Financial responsibility in effect at time of
25 accident.--Any person whose operating privilege has been
26 suspended, or is about to be suspended or become subject to
27 suspension, under this chapter shall be relieved from the effect
28 of the judgment as prescribed in this chapter if the person
29 files evidence satisfactory to the department that financial
30 responsibility was in force at the time of the accident
19850H1962B2642 - 895 -
1 resulting in the judgment and is or should be available for the
2 satisfaction of the judgment. If insurance already obtained is
3 not available because the insurance company has gone into
4 receivership or bankruptcy, the person shall only be required to
5 present to or file with the department proper evidence that an
6 insurance policy was in force at the time of the accident.
7 § 6373. Duration of suspension.
8 A person's operating privilege shall remain suspended and
9 shall not be renewed in the name of that person until every
10 judgment is stayed or satisfied in full or to the extent
11 provided in this subchapter, and until the person furnishes
12 proof of financial responsibility as required.
13 § 6374. Satisfaction of judgments.
14 (a) General rule.--For the purpose of this chapter only,
15 judgments shall be deemed satisfied upon the occurrence of one
16 of the following:
17 (1) When $15,000 has been credited upon any judgment or
18 judgments rendered in excess of that amount because of injury
19 to one person as the result of any one accident.
20 (2) When $30,000 has been credited upon any judgment or
21 judgments rendered in excess of that amount because of injury
22 to two or more persons as the result of any one accident.
23 (3) When $5,000 has been credited upon any judgment or
24 judgments rendered in excess of that amount because of damage
25 to property of others as the result of any one accident.
26 (b) Credit for payment under settlement.--Payments made in
27 settlement of any claims because of bodily injury or property
28 damage arising from a motor vehicle accident shall be credited
29 in reduction of the amounts provided for in this section.
30 (c) Escrow deposit by judgment debtor.--When the judgment
19850H1962B2642 - 896 -
1 creditor cannot be found, the judgment debtor may deposit in
2 escrow with the prothonotary of the court where the judgment was
3 entered an amount equal to the amount of the judgment, subject
4 to the limits set forth in subsection (a), interest to date and
5 record costs, whereupon the prothonotary shall notify the
6 department and the judgment shall be deemed satisfied. The
7 amount deposited shall be retained by the prothonotary for a
8 period of five years from the date of the deposit, after which,
9 if it has not been claimed by the judgment creditor, it shall be
10 returned to the judgment debtor. When the deposit is made, the
11 prothonotary shall notify the judgment creditor and his counsel,
12 if any, by certified or registered mail at his last known
13 address. Interest shall not run on any judgment with respect to
14 the amount deposited with the prothonotary under this
15 subsection.
16 § 6375. Installment payment of judgments.
17 (a) Order authorizing installment payment.--A judgment
18 debtor, upon notice to the judgment creditor, may apply to the
19 court in which the judgment was rendered for the privilege of
20 paying the judgment in installments and the court, in its
21 discretion and without prejudice to any other remedies which the
22 judgment creditor may have, may so order and fix the amounts and
23 times of payment of the installments.
24 (b) Suspension prohibited during compliance with order.--The
25 department shall not suspend a driver's operating privilege and
26 shall restore any operating privilege suspended following
27 nonpayment of a judgment when the judgment debtor obtains an
28 order permitting payment of the judgment in installments and
29 while the payment of any installment is not in default, if the
30 judgment debtor furnishes proof of financial responsibility.
19850H1962B2642 - 897 -
1 (c) Suspension for default in payment.--If the judgment
2 debtor fails to pay any installment as specified by the order,
3 then, upon notice of the default, the department shall suspend
4 the operating privilege of the judgment debtor until the
5 judgment is satisfied as provided in this chapter.
6 SUBCHAPTER H
7 PROOF OF FINANCIAL RESPONSIBILITY
8 Sec.
9 6381. Notice of sanction for not evidencing financial
10 responsibility.
11 6382. Manner of providing proof of financial responsibility.
12 6383. Proof of financial responsibility before restoring
13 operating privilege or registration.
14 6384. Proof of financial responsibility following violation.
15 6385. Proof of financial responsibility following accident.
16 6386. Self-certification of financial responsibility.
17 6387. Self-insurance.
18 § 6381. Notice of sanction for not evidencing financial
19 responsibility.
20 An applicant for registration of a vehicle shall acknowledge
21 on a form developed by the department that the applicant knows
22 he may lose his operating privilege or vehicle registrations if
23 he fails to evidence financial responsibility for the purposes
24 described in section 6372 (relating to suspension for nonpayment
25 of judgments), 6383 (relating to proof of financial
26 responsibility before restoring operating privilege or
27 registration), 6384 (relating to proof of financial
28 responsibility following violation) or 6385 (relating to proof
29 of financial responsibility following accident).
30 § 6382. Manner of providing proof of financial responsibility.
19850H1962B2642 - 898 -
1 (a) General rule.--Proof of financial responsibility may be
2 furnished by filing evidence satisfactory to the department that
3 all motor vehicles registered in the person's name are covered
4 by motor vehicle liability insurance or by a program of self-
5 insurance as provided by section 6387 (relating to self-
6 insurance) or other reliable financial arrangements, deposits,
7 resources or commitments acceptable to the department.
8 (b) Nonresident.--The nonresident owner of a motor vehicle
9 not registered in this Commonwealth may give proof of financial
10 responsibility by filing with the department a written
11 certificate or certificates of an insurance company authorized
12 to transact business in the state in which the motor vehicle or
13 motor vehicles described in the certificate are registered or,
14 if the nonresident does not own a motor vehicle, then evidence
15 satisfactory to the department that the person does not own a
16 motor vehicle. The department shall accept the certificate if
17 the insurance company complies with the following provisions
18 with respect to the policies so certified:
19 (1) The insurance company executes a power of attorney
20 authorizing the department to accept service on its behalf or
21 process in any action arising out of a motor vehicle accident
22 in this Commonwealth.
23 (2) The insurance company agrees in writing that the
24 policies shall be deemed to conform with the law of this
25 Commonwealth relating to the terms of motor vehicle liability
26 policies issued in this Commonwealth.
27 (c) Default by foreign insurance company.--If any insurance
28 company not authorized to transact business in this
29 Commonwealth, which has qualified to furnish proof of financial
30 responsibility, defaults in any undertakings or agreements, the
19850H1962B2642 - 899 -
1 department shall not thereafter accept as proof any certificate
2 of the company whether theretofore filed or thereafter tendered
3 as proof as long as the default continues.
4 § 6383. Proof of financial responsibility before restoring
5 operating privilege or registration.
6 Whenever the department suspends or revokes the operating
7 privilege of any person or the registration of any vehicle under
8 section 6372 (relating to suspension for nonpayment of
9 judgments), 6384 (relating to proof of financial responsibility
10 following violation) or 6385 (relating to proof of financial
11 responsibility following accident) or 75 Pa.C.S. § 1532
12 (relating to revocation or suspension of operating privilege) or
13 1542 (relating to revocation of habitual offender's license) or
14 upon receiving the record of a conviction or forfeiture of bail,
15 the department shall not restore the operating privilege or the
16 applicable registration until the person furnishes proof of
17 financial responsibility.
18 § 6384. Proof of financial responsibility following violation.
19 A defendant who is convicted of a traffic offense that
20 requires a court appearance, other than a parking offense, shall
21 be required to show proof of financial responsibility covering
22 the operation of the vehicle at the time of the offense. If the
23 defendant fails to show proof of financial responsibility, the
24 court shall notify the department of that fact. Upon receipt of
25 the notice, the department shall revoke the registration of the
26 vehicle. If the defendant is the owner of the vehicle, the
27 department shall also suspend the operating privilege of the
28 defendant.
29 § 6385. Proof of financial responsibility following accident.
30 If the department determines that the owner of a motor
19850H1962B2642 - 900 -
1 vehicle involved in an accident requiring notice to a police
2 department under 75 Pa.C.S. § 3746 (relating to immediate notice
3 of accident to police department) did not maintain financial
4 responsibility on the motor vehicle at the time of the accident,
5 the department shall suspend the operating privilege of the
6 owner, where applicable, and shall revoke the registration of
7 the vehicle.
8 § 6386. Self-certification of financial responsibility.
9 The department shall require that each motor vehicle
10 registrant certify that the registrant is financially
11 responsible at the time of registration or renewal thereof. The
12 department shall refuse to register or renew the registration of
13 a vehicle for failure to comply with this requirement or
14 falsification of self-certification.
15 § 6387. Self-insurance.
16 (a) General rule.--Self-insurance is effected by filing with
17 the department, in satisfactory form, evidence that reliable
18 financial arrangements, deposits, resources or commitments exist
19 such as will satisfy the department that the self-insurer will:
20 (1) Provide the benefits required by section 6311
21 (relating to required benefits), subject to Subchapter B
22 (relating to motor vehicle liability insurance first party
23 benefits), except the additional benefits and limits provided
24 in sections 6312 (relating to availability of benefits) and
25 6315 (relating to availability of adequate limits).
26 (2) Make payments sufficient to satisfy judgments as
27 required by section 6374 (relating to satisfaction of
28 judgments).
29 (3) Provide uninsured motorist coverage up to the limits
30 set forth in section 6374.
19850H1962B2642 - 901 -
1 (b) Stacking limits prohibited.--Any recovery of uninsured
2 motorist benefits under this section only shall not be increased
3 by stacking the limits provided in section 6374, in
4 consideration of the ownership or operation of multiple vehicles
5 or otherwise.
6 (c) Assigned Risk and Assigned Claims Plans.--Self-insurers
7 shall not be required to accept assigned risks under Subchapter
8 D (relating to Assigned Risk Plan) or contribute to the Assigned
9 Claims Plan under Subchapter E (relating to Assigned Claims
10 Plan).
11 (d) Catastrophic Loss Trust Fund.--Self-insurers shall
12 contribute to the Catastrophic Loss Trust Fund in the manner
13 provided in Subchapter F (relating to Catastrophic Loss Trust
14 Fund).
15 (e) Promulgation of regulations.--The department may,
16 jointly with the commissioner, promulgate regulations for
17 reviewing and establishing the financial eligibility of self-
18 insurers.
19 SUBCHAPTER I
20 MISCELLANEOUS PROVISIONS
21 Sec.
22 6391. Notice of available benefits and limits.
23 6392. Availability of certain coverage.
24 6393. Premiums.
25 6394. Jurisdictional limit on judicial arbitration.
26 6395. Insurance fraud reporting immunity.
27 6396. Mental or physical examinations.
28 6397. Customary charges for treatment.
29 6398. Attorney fees and costs.
30 § 6391. Notice of available benefits and limits.
19850H1962B2642 - 902 -
1 It shall be presumed that the insured has been advised of the
2 benefits and limits available under this chapter if the
3 following notice in bold print of at least ten-point type is
4 given to the applicant at the time of application for original
5 coverage or at the time of the first renewal after October 1,
6 1984:
7 IMPORTANT NOTICE
8 Insurance companies operating in the Commonwealth of
9 Pennsylvania are required by law to make available for
10 purchase the following benefits for you, your spouse or
11 other relatives or minors in your custody or in the
12 custody of your relatives, residing in your household,
13 occupants of your motor vehicle or persons struck by your
14 motor vehicle:
15 (1) Medical benefits, up to at least $100,000.
16 (2) Income loss benefits, up to at least $2,500 a
17 month up to a maximum benefit of at least $50,000.
18 (3) Accidental death benefits, up to at least
19 $25,000.
20 (4) Funeral benefits, $2,500.
21 (5) As an alternative to paragraphs (1) through (4),
22 a combination benefit, up to at least $277,500 of
23 benefits in the aggregate or benefits payable up to three
24 years from the date of the accident, whichever occurs
25 first, subject to a limit on accidental death benefit of
26 up to $25,000 and a limit on funeral benefit of $2,500.
27 (6) Uninsured, underinsured and bodily injury
28 liability coverage up to at least $100,000 because of
29 injury to one person in any one accident and up to at
30 least $300,000 because of injury to two or more persons
19850H1962B2642 - 903 -
1 in any one accident or, at the option of the insurer, up
2 to at least $300,000 in a single limit for these
3 coverages, except for policies issued under the Assigned
4 Risk Plan. Also, at least $5,000 for damage to property
5 of others in any one accident.
6 Additionally, insurers may offer higher benefit levels
7 than those enumerated above as well as additional
8 benefits. However, an insured may elect to purchase lower
9 benefit levels than those enumerated above. Your
10 signature on this notice or your payment of any renewal
11 premium evidences your actual knowledge and understanding
12 of the availability of these benefits and limits as well
13 as the benefits and limits you have selected.
14 § 6392. Availability of certain coverage.
15 Except for policies issued under Subchapter D (relating to
16 Assigned Risk Plan), an insurer issuing a policy of bodily
17 injury liability coverage pursuant to this chapter shall make
18 available for purchase higher limits of uninsured, underinsured
19 and bodily injury liability coverages up to at least $100,000
20 because of injury to one person in any one accident and up to at
21 least $300,000 because of injury to two or more persons in any
22 one accident or, at the option of the insurer, up to at least
23 $300,000 in a single limit for these coverages. Additionally, an
24 insurer shall make available for purchase at least $5,000
25 because of damage to property of others in any one accident.
26 However, the exclusion of availability relating to the Assigned
27 Risk Plan shall not apply to damage to property of others in any
28 one accident.
29 § 6393. Premiums.
30 (a) Limitation on premium increases.--
19850H1962B2642 - 904 -
1 (1) An insurer shall not increase the premium rate of an
2 owner of a policy of insurance subject to this chapter solely
3 because one or more of the insureds under the policy made a
4 claim under the policy and was paid thereon unless it is
5 determined that the insured was at fault in contributing to
6 the accident giving rise to the claim.
7 (2) An insurer shall not charge an insured who has been
8 convicted of a violation of an offense enumerated in 75
9 Pa.C.S. § 1535 (relating to schedule of convictions and
10 points) a higher rate for a policy of insurance solely on
11 account of the conviction. An insurer may charge an insured a
12 higher rate for a policy of insurance if a claim is made
13 under paragraph (1).
14 (b) Surcharge disclosure plan.--All insurers shall provide
15 to the insured a surcharge disclosure plan. The insurer
16 providing the surcharge disclosure plan shall detail the
17 provisions of the plan, including, but not limited to:
18 (1) A description of conditions that would assess a
19 premium surcharge to an insured along with the estimated
20 increase of the surcharge per policy period per policyholder.
21 (2) The number of years any surcharge will be in effect.
22 The surcharge disclosure plan shall be delivered to each insured
23 by the insurer at least once annually. Additionally, the
24 surcharge information plan shall be given to each prospective
25 insured at the time application is made for motor vehicle
26 insurance coverage.
27 (c) Return of premiums of canceled policies.--When an
28 insurer cancels a motor vehicle insurance policy which is
29 subject to section 6107(3) (relating to exclusions), the insurer
30 shall within 30 days of canceling the policy return to the
19850H1962B2642 - 905 -
1 insured all premiums paid under the policy less any proration
2 for the period the policy was in effect. Premiums are overdue if
3 not paid to the insured within 30 days after canceling the
4 policy. Overdue return premiums shall bear interest at the rate
5 of 12% a year from the date the return premium became due.
6 (d) Rules and regulations.--The commissioner shall
7 promulgate rules and regulations establishing guidelines and
8 procedures for determining fault of an insured for the purpose
9 of subsection (a) and guidelines for the content and format of
10 the surcharge disclosure plan.
11 § 6394. Jurisdictional limit on judicial arbitration.
12 Beginning January 1, 1987, the monetary limit under 42
13 Pa.C.S. § 7361(b)(2)(i) (relating to compulsory arbitration) for
14 the submission of matters to judicial arbitration in judicial
15 districts embracing first and second class counties shall be
16 $25,000 for actions arising from the maintenance or use of a
17 motor vehicle.
18 § 6395. Insurance fraud reporting immunity.
19 (a) General rule.--An insurance company, and any agent,
20 servant or employee acting in the course and scope of his
21 employment, shall be immune from civil or criminal liability
22 arising from the supply or release of written or oral
23 information to any duly authorized Federal or state law
24 enforcement agency, including the commissioner, if the following
25 conditions obtain:
26 (1) The information is supplied to the agency in
27 connection with an allegation of fraudulent conduct on the
28 part of any person relating to the filing or maintenance of a
29 motor vehicle insurance claim for bodily injury or property
30 damage.
19850H1962B2642 - 906 -
1 (2) The insurance company, agent, servant or employee
2 has probable cause to believe that the information supplied
3 is reasonably related to the allegation of fraud.
4 (b) Notice to policyholder.--The insurance company shall
5 send written notice to the policyholder or policyholders about
6 whom the information pertains unless the insurance company
7 receives notice that the authorized agency finds, based on
8 specific facts, that there is reason to believe that the
9 information will result in any of the following:
10 (1) Endangerment to the life or physical safety of any
11 person.
12 (2) Flight from prosecution.
13 (3) Destruction of or tampering with evidence.
14 (4) Intimidation of any potential witness or witnesses.
15 (5) Obstruction of or serious jeopardy to an
16 investigation.
17 The insurance company shall send written notice not sooner than
18 45 days nor more than 60 days from the time the information is
19 furnished to an authorized agency, except when the agency
20 specifies that a notice should not be sent in accordance with
21 the exceptions enumerated in this subsection, in which event the
22 insurance company shall send written notice to the policyholder
23 not sooner than 180 days nor more than 190 days following the
24 date the information is furnished.
25 (c) Immunity for sending notice.--An insurance company or
26 authorized agency and any person acting on behalf of an
27 insurance company or authorized agency complying with or
28 attempting in good faith to comply with subsection (b) shall be
29 immune from civil liability arising out of any acts or omissions
30 in so doing.
19850H1962B2642 - 907 -
1 (d) Effect.--This section does not create any rights to
2 privacy or causes of action on behalf of policyholders that were
3 not in existence as of October 1, 1984.
4 § 6396. Mental or physical examinations.
5 (a) General rule.--Whenever the mental or physical condition
6 of a person is material to any claim for medical, income loss or
7 catastrophic loss benefits, a court of competent jurisdiction or
8 the administrator of the Catastrophic Loss Trust Fund for
9 catastrophic loss claims may order the person to submit to a
10 mental or physical examination by a physician. The order may
11 only be made upon motion for good cause shown. The order shall
12 give the person to be examined adequate notice of the time and
13 date of the examination and shall state the manner, conditions
14 and scope of the examination and the physician by whom it is to
15 be performed. If a person fails to comply with an order to be
16 examined, the court or the administrator may order that the
17 person be denied benefits until compliance.
18 (b) Report of examination.--If requested by the person
19 examined, a party causing an examination to be made shall
20 promptly deliver to the person examined a copy of every written
21 report concerning the examination at least one of which shall
22 set forth the physician's findings and conclusions in detail.
23 Upon failure to promptly provide copies of these reports, the
24 court or the administrator shall prohibit the testimony of the
25 examining physician in any proceeding to recover benefits.
26 § 6397. Customary charges for treatment.
27 A person or institution providing treatment, accommodations,
28 products or services to an injured person for an injury covered
29 by medical or catastrophic loss benefits shall not make a charge
30 for the treatment, accommodations, products or services in
19850H1962B2642 - 908 -
1 excess of the amount the person or institution customarily
2 charges for like treatment, accommodations, products and
3 services in cases involving no insurance.
4 § 6398. Attorney fees and costs.
5 (a) Basis for reasonable fee.--No attorney fee for
6 representing a claimant in connection with a claim for first
7 party benefits provided under Subchapter B (relating to motor
8 vehicle liability insurance first party benefits) or a claim for
9 catastrophic loss benefits under Subchapter F (relating to
10 Catastrophic Loss Trust Fund) shall be calculated, determined or
11 paid on a contingent fee basis, nor shall any attorney fees be
12 deducted from the benefits enumerated in this subsection which
13 are otherwise due such claimant. An attorney may charge a
14 claimant a reasonable fee based upon actual time expended.
15 (b) Unreasonable refusal to pay benefits.--If an insurer is
16 found to have acted unreasonably in refusing to pay the benefits
17 enumerated in subsection (a) when due, the insurer shall pay, in
18 addition to the benefits owed and the interest thereon, a
19 reasonable attorney fee based upon actual time expended.
20 (c) Payment by fund.--The Catastrophic Loss Trust Fund may
21 award the claimant's attorney a reasonable fee based upon actual
22 time expended if a claimant is unable to otherwise pay the fees
23 and costs.
24 (d) Fraudulent or excessive claims.--If, in any action by a
25 claimant to recover benefits under this chapter, the court
26 determines that the claim, or a significant part thereof, is
27 fraudulent or unreasonably excessive, the court may award the
28 insurer's attorney a reasonable fee based upon actual time
29 expended. The court may direct that the fee shall be paid by the
30 claimant or that the fee may be treated in whole or in part as
19850H1962B2642 - 909 -
1 an offset against any benefits due the claimant.
2 CHAPTER 65
3 CREDIT INSURANCE
4 Sec.
5 6501. General provisions.
6 6502. Definitions.
7 6503. Forms.
8 6504. Amount of insurance.
9 6505. Term of insurance.
10 6506. Disclosure to debtors.
11 6507. Review of forms and premium rates.
12 6508. Premiums and refunds.
13 6509. Issuance of policies.
14 6510. Claims.
15 6511. Choice of insurer.
16 6512. Enforcement.
17 6513. Judicial review.
18 6514. Penalties.
19 § 6501. General provisions.
20 (a) Short title of chapter.--This chapter shall be known and
21 may be cited as the Model Act for the Regulation of Credit Life
22 Insurance and Credit Accident and Health Insurance.
23 (b) Purpose.--The purpose of this chapter is to promote the
24 public welfare by regulating credit life insurance and credit
25 accident and health insurance. This chapter is not intended to
26 prohibit or discourage reasonable competition.
27 (c) Construction.--The provisions of this chapter shall be
28 liberally construed.
29 (d) Scope of chapter.--All life insurance and all accident
30 and health insurance in connection with loans or other credit
19850H1962B2642 - 910 -
1 transactions shall be subject to this chapter, except the
2 following types of health and accident insurance:
3 (1) Insurance in connection with a loan or other credit
4 transaction or more than 20 years' duration.
5 (2) Insurance in connection with a first real estate
6 mortgage, but if the mortgage is secured by a new or used
7 mobile home or dwelling trailer the insurance shall be
8 subject to the provisions of this chapter, regardless of the
9 duration of the underlying loan or other credit transaction.
10 (3) Insurance issued as an isolated transaction on the
11 part of the insurer not related to an agreement or a plan for
12 insuring debtors of the creditor.
13 § 6502. Definitions.
14 The following words and phrases when used in this chapter
15 shall have the meanings given to them in this section unless the
16 context clearly indicates otherwise:
17 "Credit accident and health insurance." Insurance on a
18 debtor to provide indemnity for payments becoming due on a
19 specific loan or other credit transaction while the debtor is
20 disabled as defined in the policy.
21 "Credit insurance." Credit life insurance and credit
22 accident and health insurance.
23 "Credit life insurance." Insurance on the life of a debtor
24 pursuant to or in connection with a specific loan or other
25 credit transaction.
26 "Creditor." The lender of money or vendor or lessor of
27 goods, services, property rights or privileges for which payment
28 is arranged through a credit transaction or any successor to the
29 right, title or interest of any such lender, vendor or lessor
30 and an affiliate, associate or subsidiary of any of them.
19850H1962B2642 - 911 -
1 "Debtor." A borrower of money or a purchaser or lessee of
2 goods, services, property rights or privileges for which payment
3 is arranged through a credit transaction.
4 "Dwelling trailer." Any portable dwelling structure or
5 movable dwelling unit designed, constructed and equipped for
6 human use with a chassis or undercarriage as an integral part
7 thereof, with or without independent motive power, capable of
8 being drawn or driven upon highways.
9 "Indebtedness." The total amount payable by a debtor to a
10 creditor in connection with a loan or other credit transaction.
11 "Mobile home." Any portable structure or movable unit
12 equipped to be drawn or travel on the highways that is used
13 either temporarily or permanently as a residence home, dwelling
14 unit, apartment or other housing accommodation or as an office.
15 § 6503. Forms.
16 Credit insurance shall be issued only in the following forms:
17 (1) Individual policies of life insurance to insure the
18 lives of debtors on the term plan.
19 (2) Individual policies of accident and health insurance
20 to insure debtors on a term plan or disability benefit
21 provisions in individual policies of credit life insurance.
22 (3) Group policies of life insurance issued for delivery
23 to creditors providing insurance upon the lives of debtors on
24 the term plan.
25 (4) Group policies of accident and health insurance
26 issued for delivery to creditors on a term plan insuring
27 debtors or disability benefit provisions in group credit life
28 insurance policies to provide such coverage.
29 § 6504. Amount of insurance.
30 (a) General rule.--The initial amount of credit life
19850H1962B2642 - 912 -
1 insurance shall not exceed the total amount repayable under the
2 contract of indebtedness. Where an indebtedness repayable in
3 substantially equal installments is secured by an individual
4 policy of credit life insurance, the amount of insurance shall
5 not exceed the scheduled amount of indebtedness or the amount of
6 unpaid indebtedness, whichever is the greater, and where secured
7 by a group policy of credit life insurance shall not exceed the
8 amount of unpaid indebtedness.
9 (b) Exceptions.--Notwithstanding any other provisions of
10 this chapter, insurance on agricultural credit transaction
11 commitments not exceeding one year in duration may be written up
12 to the amount of the loan commitment on a nondecreasing or level
13 term plan. Notwithstanding any other provisions of this title,
14 insurance on educational credit transaction commitments may be
15 written for the amount of the portion of the commitment that has
16 not been advanced by the creditor.
17 (c) Periodic indemnity.--The total amount of periodic
18 indemnity payable by credit accident and health insurance in the
19 event of disability as defined in the policy shall not exceed
20 the aggregate of the periodic scheduled unpaid installments of
21 the indebtedness, and the amount of each periodic indemnity
22 payment shall not exceed the original indebtedness divided by
23 the number of periodic installments.
24 § 6505. Term of insurance.
25 The term of any credit insurance shall, subject to acceptance
26 by the insurer, commence on the date when the debtor becomes
27 obligated to the creditor or the date from which interest or
28 finance charges accrue if later, except that when a group policy
29 provides coverage with respect to existing obligations, the
30 insurance on a debtor with respect to the indebtedness shall
19850H1962B2642 - 913 -
1 commence on the effective date of the policy. When evidence of
2 insurability is required and is furnished more than 30 days
3 after the date when the debtor becomes obligated to the
4 creditor, the term of the insurance may commence on the date on
5 which the insurance company determines the evidence to be
6 satisfactory and shall make an appropriate refund or adjustment
7 of any charge to the debtor for insurance. The term of credit
8 insurance shall not extend more than 15 days beyond the
9 scheduled maturity date of the indebtedness, except when
10 extended without additional cost to the debtor. If the
11 indebtedness is discharged due to renewal or refinancing prior
12 to the scheduled maturity date, the insurance in force shall be
13 terminated before any new insurance may be issued in connection
14 with the renewed or refinanced indebtedness. In all cases of
15 termination prior to scheduled maturity, a refund shall be paid
16 or credited as provided in section 6508 (relating to premiums
17 and refunds).
18 § 6506. Disclosure to debtors.
19 (a) Policies and certificates.--All credit insurance shall
20 be evidenced by an individual policy or in the case of group
21 insurance by a certificate of insurance, which policy or
22 certificate shall be delivered to the debtor within 30 days
23 after the date the indebtedness is incurred. Each individual
24 policy or group certificate of credit insurance shall, in
25 addition to other requirements of law, include:
26 (1) The name and home office address of the insurer.
27 (2) The name or names of the debtor or in the case of a
28 certificate under a group policy the identity by name or
29 otherwise of the debtor.
30 (3) The rate of amount of payment, if any, by the debtor
19850H1962B2642 - 914 -
1 separately for credit life insurance and credit accident and
2 health insurance.
3 (4) A description of the amount, term and coverage,
4 including any exceptions, limitations or restrictions.
5 (5) A statement that the benefits shall be paid to the
6 creditor to reduce or extinguish the unpaid indebtedness and
7 that, if the amount of insurance exceeds the unpaid
8 indebtedness, the excess shall be payable to a beneficiary
9 other than the creditor named by the debtor or to his estate.
10 (b) Preliminary disclosures.--If a separate identifiable
11 charge is made to the debtor for the insurance and an individual
12 policy or group certificate of insurance is not delivered to the
13 debtor at the time the indebtedness is incurred, a copy of the
14 application for the policy or a notice of proposed insurance
15 shall be delivered to the debtor at that time, which shall
16 include the following:
17 (1) The identity by name or otherwise of the person or
18 persons insured.
19 (2) The rate or amount of payment by the debtor
20 separately for credit life insurance and credit accident and
21 health insurance.
22 (3) A statement that, subject to acceptance by the
23 insurer and within 30 days, there will be delivered to the
24 debtor a policy or certificate of insurance naming the
25 insurer and fully describing the insurance.
26 The copy of the application for or notice of proposed insurance
27 shall also refer exclusively to insurance coverage and shall be
28 separate and apart from the loan, sale or other credit statement
29 of account, instrument or agreement, unless the information
30 required by this subsection is prominently set forth therein.
19850H1962B2642 - 915 -
1 The application or notice of proposed insurance shall state
2 that, upon acceptance by the insurer, the insurance shall become
3 effective as provided in section 6505 (relating to term of
4 insurance). Upon acceptance of the insurance by the insurer and
5 within 30 days of the date upon which the indebtedness is
6 incurred, the insurer shall deliver an individual policy or
7 group certificate of insurance under subsection (a).
8 (c) Refusal of risk.--If the named insurer does not accept
9 the risk, the debtor shall promptly receive a policy or
10 certificate of insurance setting forth the name and home office
11 address of the substituted insurer and the amount of the premium
12 to be charged and, if the amount of premium is less than that
13 set forth in the notice of proposed insurance, an appropriate
14 refund shall be made.
15 § 6507. Review of forms and premium rates.
16 (a) Review by commissioner.--All policies, certificates of
17 insurance, notices of proposed insurance, applications for
18 insurance, endorsements and riders delivered or issued for
19 delivery in this Commonwealth, together with the premium rates
20 therefor, shall be filed with the commissioner for approval.
21 Forms and rates so filed shall be deemed approved at the
22 expiration of 30 days after filing unless earlier approved or
23 disapproved by the commissioner. The commissioner by written
24 notice to the insurer may, with the 30-day period, extend the
25 period for approval or disapproval for an additional 30 days. A
26 form subject to this section or premium rate shall not be issued
27 or used until the expiration of the time for the consideration
28 by the commissioner, unless the commissioner has given his
29 written approval thereto.
30 (b) Disapproval.--The commissioner shall disapprove any form
19850H1962B2642 - 916 -
1 or premium rate if the table of premium rates appears by
2 reasonable assumptions to be excessive in relation to benefits,
3 or if the form contains provisions which are unjust or are
4 contrary to law. In determining whether to disapprove any such
5 form or premium rates, the commissioner shall give due
6 consideration to past and prospective loss experience in and
7 outside this Commonwealth, to underwriting practice and
8 judgment, to a reasonable margin for underwriting profit and
9 contingencies, to past and prospective expenses in and outside
10 this Commonwealth and to all other relevant factors. If the form
11 or premium rate is disapproved, the insurer shall not issue or
12 use the form or rates.
13 (c) Notice of disapproval.--The commissioner shall promptly
14 give notice to the insurer of his disapproval of a form or
15 premium rate under subsection (b). In the notice, the
16 commissioner shall specify the reason for his disapproval and
17 state that a hearing will be granted within 20 days after
18 request in writing by the insurer.
19 (d) Withdrawal of approval.--The commissioner may, at any
20 time after a hearing held not less than 20 days after written
21 notice to the insurer, withdraw his approval of any such form or
22 premium rate on any ground set forth in subsection (b). The
23 written notice of the hearing shall state the reason for the
24 proposed withdrawal. The insurer shall not issue or use such
25 forms or rates after the effective date of the withdrawal.
26 (e) Judicial review.--Any order or final determination of
27 the commissioner after a hearing under this section shall be
28 subject to judicial review.
29 (f) Group policies.--With regard to group policies of credit
30 insurance delivered in this Commonwealth before November 1,
19850H1962B2642 - 917 -
1 1961, or delivered in another state at any time, the insurer
2 shall be required to file only the group certificate and notice
3 of proposed insurance, delivered or issued for delivery in this
4 Commonwealth as specified in section 6506 (relating to
5 disclosure to debtors). These forms shall be approved by the
6 commissioner if they contain the information specified therein
7 and if the schedules of premium rates applicable to the
8 insurance evidenced by the certificate or notice are not in
9 excess of the insurer's schedules of premium rates on file with
10 the commissioner.
11 § 6508. Premiums and refunds.
12 (a) Revision of rates.--Any insurer may revise its schedules
13 of premium rates from time to time and shall file such revised
14 schedules with the commissioner. An insurer shall not issue any
15 credit insurance policy for which the premium rate exceeds that
16 determined by the schedules of the insurer as then on file with
17 the commissioner.
18 (b) Refunds.--Each individual policy or group certificate
19 shall provide that, in the event of termination of the insurance
20 prior to the scheduled maturity date of the indebtedness, any
21 refund of an amount paid by the debtor for insurance shall be
22 paid or credited promptly to the person entitled thereto, except
23 that the commissioner shall prescribe a minimum refund, and no
24 refund which would be less than such minimum need be made. The
25 formula to be used in computing the refund shall be filed with
26 and approved by the commissioner.
27 (c) Payments required by creditor.--If a creditor requires a
28 debtor to make any payment for credit insurance and an
29 individual policy or group certificate of insurance is not
30 issued, the creditor shall immediately give written notice to
19850H1962B2642 - 918 -
1 the debtor and shall promptly make an appropriate credit to the
2 account.
3 (d) Limitation on charges.--The amount charged to a debtor
4 for any credit insurance shall not exceed the aggregate of the
5 premiums to be charged by the insurer as computed at the time
6 the charge to the debtor is determined.
7 (e) Payments under other law.--This chapter does not
8 authorize any payments for credit insurance now prohibited under
9 any statute or regulation thereunder governing credit
10 transactions, except that when payment for credit insurance is
11 not prohibited under any statute or rule thereunder governing
12 credit transactions, the commissions, dividends or other returns
13 to the creditor therefrom shall not be deemed a violation of
14 law.
15 § 6509. Issuance of policies.
16 All policies of credit life insurance and credit accident and
17 health insurance shall be delivered or issued for delivery in
18 this Commonwealth only by an insurer authorized to do an
19 insurance business in this Commonwealth and shall be issued only
20 through holders of licenses or authorizations issued by the
21 commissioner.
22 § 6510. Claims.
23 (a) Method of payment.--All claims shall be paid either by
24 draft drawn upon the insurer or by check of the insurer to the
25 order of the claimant to whom payment of the claim is due
26 pursuant to the policy provisions or upon direction of the
27 claimant to one specified.
28 (b) Authority to settle claims.--A plan or arrangement shall
29 not be used whereby any person, firm or corporation other than
30 the insurer or its designated claim representative are
19850H1962B2642 - 919 -
1 authorized to settle or adjust claims. The creditor shall not be
2 designated as claim representative for the insurer in adjusting
3 claims, except that a group policyholder may, by arrangement
4 with the group insurer, draw drafts or checks in payment of
5 claims due to the group policyholder subject to audit and review
6 by the insurer.
7 § 6511. Choice of insurer.
8 When credit insurance is required as additional security for
9 any indebtedness, the debtor may, upon request to the creditor,
10 furnish the required amount of insurance through existing
11 policies of insurance owned or controlled by him or of procuring
12 and furnishing the required coverage through any insurer
13 authorized to transact an insurance business in this
14 Commonwealth.
15 § 6512. Enforcement.
16 Whenever the commissioner finds that there has been a
17 violation of this chapter or any rules and regulations
18 promulgated thereunder, after written notice thereof and hearing
19 given to the insurer or other person authorized or licensed by
20 the commissioner, he shall set forth the details of his
21 findings, together with an order for compliance by a specified
22 date. The order shall be binding on the person so ordered on the
23 date specified unless the order is withdrawn by the commissioner
24 or a stay is ordered by a court.
25 § 6513. Judicial review.
26 Any party to a proceeding affected by an order of the
27 commissioner shall be entitled to judicial review.
28 § 6514. Penalties.
29 (a) Monetary penalties.--Any insurer or any person who
30 violates an order of the commissioner after it has become final
19850H1962B2642 - 920 -
1 and while the order is in effect shall, upon proof thereof to
2 the satisfaction of the court, pay to the Commonwealth a sum not
3 to exceed $250 which may be recovered in a civil action. If the
4 violation is found to be willful, the penalty shall be a sum not
5 to exceed $1,000.
6 (b) Licensure penalties.--The commissioner may revoke or
7 suspend the license or certificate of authority of the insurer
8 or the person guilty of such a violation.
9 CHAPTER 67
10 TITLE INSURANCE
11 Subchapter
12 A. General Provisions
13 B. Business Operations
14 C. Investment and Reserves
15 D. Rate Regulation
16 E. Penalties and Procedures
17 SUBCHAPTER A
18 GENERAL PROVISIONS
19 Sec.
20 6701. Definitions.
21 6702. Applicability of chapter.
22 6703. Applicability of other provisions of title.
23 § 6701. Definitions.
24 The following words and phrases when used in this chapter
25 shall the meanings given to them in this section unless the
26 context clearly indicates otherwise:
27 "Applicant for insurance." Includes approved attorneys, real
28 estate brokers, real estate salesmen, attorneys at law and all
29 others who from time to time apply to a title insurance company
30 or to an agent of a title insurance company, for title
19850H1962B2642 - 921 -
1 insurance, and who at the time of the application are not agents
2 for a title insurance company.
3 "Approved attorney." An attorney at law in good standing
4 upon whose examination of title and report of title thereon a
5 title insurance company may issue a policy of title insurance.
6 "Business of title insurance."
7 (1) The making as insurer, guarantor or surety, or
8 proposing to make as insurer, guarantor or surety, of any
9 contract or policy of title insurance.
10 (2) The transacting, or proposing to transact, any phase
11 of title insurance, including solicitation, negotiation
12 preliminary to execution, execution of a contract of title
13 insurance, insuring and transacting matters subsequent to the
14 execution of the contract and arising out of it, including
15 reinsurance.
16 (3) The doing, or proposing to do, any business in
17 substance equivalent to any of the foregoing in a manner
18 designed to evade the provisions of this chapter.
19 "Fee." The premium, the examination and settlement or
20 closing fees, and every other charge, whether denominated
21 premium or otherwise, made by a title insurance company, agent
22 of a title insurance company or an approved attorney of a title
23 insurance company to an insured or to an applicant for
24 insurance, for any policy or contract for the issuance of, or an
25 application for title insurance. The term does not include any
26 charges paid by an insured or by an applicant for insurance for
27 any policy or contract, to an attorney at law acting as an
28 independent contractor and retained by such attorney at law,
29 whether or not he is acting as an agent of or an approved
30 attorney of a title insurance company, or any charges made for
19850H1962B2642 - 922 -
1 special services not constituting title insurance, even though
2 performed in connection with a title insurance policy or
3 contract.
4 "Title insurance."
5 (1) Insuring, guaranteeing or indemnifying against loss
6 or damage suffered by owners of real property or by
7 mortgagees or others interested therein by reason of liens,
8 encumbrances upon, defects in or the unmarketability of the
9 title to the real property.
10 (2) Guaranteeing, warranting or otherwise insuring the
11 correctness of searches relating to the title to real
12 property, and doing any business in substance equivalent to
13 any of the foregoing in a manner designed to evade this
14 chapter.
15 "Title insurance company."
16 (1) A domestic company organized under the provisions of
17 this chapter for the purpose of insuring titles to real
18 estate.
19 (2) A title insurance company organized under the laws
20 of another state or a foreign government and licensed to
21 insure titles to real estate in this Commonwealth pursuant to
22 section 6719 (relating to licensure of foreign insurers).
23 (3) A domestic or foreign company, including any
24 domestic bank or trust company, which has the power and is
25 authorized to insure titles to real estate in this
26 Commonwealth as of September 1, 1963, and which is not
27 disqualified under section 6715 (relating to loss of power to
28 transact title insurance).
29 § 6702. Applicability of chapter.
30 This chapter applies to all title insurance companies, title
19850H1962B2642 - 923 -
1 rating organizations, title insurance agents, applicants for
2 title insurance and policyholders and to all persons and
3 business entities engaged in the business of title insurance.
4 § 6703. Applicability of other provisions of title.
5 In addition to the provisions of this chapter, only the
6 following provisions of this title, except as they are
7 inconsistent with this chapter, shall apply to the business of
8 title insurance and to title insurance companies, which shall be
9 considered as within the class of insurance companies regulated
10 by those provisions solely for the purpose of being subject to
11 such provisions:
12 Chapter 1 (relating to general provisions).
13 Chapter 3 (relating to general provisions).
14 Chapter 5 (relating to Insurance Department).
15 Subchapter E of Chapter 7 (relating to title insurance).
16 Section 901 (relating to deposit of securities with
17 commissioner).
18 Section 904 (relating to actions in equity regarding
19 deposits).
20 Sections 1102 (relating to certification of agents)
21 through 1107 (relating to penalty for soliciting for
22 nonexistent company).
23 Sections 1141 (relating to penalty for acting for
24 entities failing to authorize substituted service) and 1142
25 (relating to larceny).
26 Sections 1145 (relating to offering rebates and
27 inducements) through 1149 (relating to penalties imposed by
28 commissioner).
29 Subchapter E of Chapter 11 (relating to managers and
30 exclusive general agents).
19850H1962B2642 - 924 -
1 Chapter 15 (relating to unfair insurance practices).
2 Sections 1705 (relating to reports of financial
3 condition) and 1706 (relating to additional reports from
4 foreign or alien entities).
5 Sections 3101 (relating to scope of part) through 3104
6 (relating to power of General Assembly regarding charters).
7 Section 3106 (relating to judicial proceedings).
8 Sections 3303 (relating to articles of agreement) through
9 3305 (relating to capital stock).
10 Sections 3307 (relating to officers and directors) and
11 3308 (relating to subscriptions).
12 Subchapter B of Chapter 33 (relating to promotion).
13 Subchapter C of Chapter 33 (relating to authorization).
14 Section 3351 (relating to valuation of securities).
15 Sections 3501 (relating to use of company name) through
16 3508 (relating to execution of insurance policies).
17 Sections 3510 (relating to incorporation of documents in
18 policy) through 3516 (relating to mortgage insurance).
19 Sections 3531 (relating to annual meetings) through 3533
20 (relating to election of directors and trustees).
21 Sections 3535 (relating to voting by stockholders and
22 members) through 3539 (relating to directors and trustees).
23 Subchapter C of Chapter 35 (relating to fundamental
24 changes).
25 Sections 3565 (relating to protection of competition)
26 through 3571 (relating to dissolution for failure to do
27 business).
28 Subchapter E of Chapter 35 (relating to foreign or alien
29 companies).
30 Section 3581 (relating to embezzlement by officers or
19850H1962B2642 - 925 -
1 agents) through 3587 (relating to buying proxies).
2 Section 3589 (relating to fraud in obtaining licenses or
3 certificates).
4 Chapter 39 (relating to suspension of business and
5 dissolution).
6 Sections 5507 (relating to dividends), 5508 (relating to
7 reduction and withdrawal of capital stock) and 5510 (relating
8 to resident agents for foreign or alien insurance entities).
9 SUBCHAPTER B
10 BUSINESS OPERATIONS
11 Sec.
12 6711. Powers of title insurance companies.
13 6712. Corporate form.
14 6713. Title examination and records.
15 6714. Prohibition of guaranteeing mortgages.
16 6715. Loss of power to transact title insurance.
17 6716. Primary retained liability.
18 6717. Power to reinsure.
19 6718. Special reinsurance.
20 6719. Licensure of foreign or alien insurers.
21 6720. Resident agents for foreign or alien insurers.
22 6721. Regulation of agents.
23 6722. Commissions.
24 6723. Mergers and consolidations.
25 6724. Other corporate acquisitions.
26 6725. Change in corporate control.
27 § 6711. Powers of title insurance companies.
28 Only a title insurance company as defined in section 6701
29 (relating to definitions) may underwrite or issue a policy of
30 title insurance. A person shall not engage in the business of
19850H1962B2642 - 926 -
1 title insurance in this Commonwealth unless authorized to
2 transact such a business by this chapter. A title insurance
3 company shall not transact, underwrite or issue any kind of
4 insurance other than title insurance.
5 § 6712. Corporate form.
6 A title insurance company shall be organized as a stock
7 corporation as provided in sections 3303 (relating to articles
8 of agreement), 3304 (relating to name of company), 3305
9 (relating to capital stock), 3307 (relating to officers and
10 directors) and 3308 (relating to subscriptions) and authorized
11 under Subchapter C of Chapter 33 (relating to authorization),
12 except as prescribed in this chapter, to do the kind of
13 insurance business, with incidental powers, specified in this
14 chapter. Section 3306 (relating to minimum capital stock and
15 financial requirements) does not apply to title insurance
16 companies.
17 § 6713. Title examination and records.
18 A policy of title insurance, excluding reinsurance, shall not
19 be written unless the title insurance company, through its own
20 employees, agents or approved attorneys, has conducted a
21 reasonable examination of the record title or has caused such an
22 examination to be conducted. The abstract of title or the report
23 of the examination thereof shall be in writing and shall be kept
24 on file by the title insurance company, its agent or an approved
25 attorney for a period of not less than 20 years after the policy
26 of title insurance has been issued. In lieu of retaining the
27 original copy, the title insurance company, its agent or the
28 approved attorney may record, copy or reproduce all or some of
29 these documents.
30 § 6714. Prohibition of guaranteeing mortgages.
19850H1962B2642 - 927 -
1 A title insurance company shall not guarantee the payment of
2 the principal or the interest of bonds or other obligations
3 secured by mortgages upon real property.
4 § 6715. Loss of power to transact title insurance.
5 (a) Break in use of power.--Every title insurance company
6 which does not exercise for any period of 12 months the power to
7 insure owners of real property, mortgagees and others interested
8 in real property from loss by reason of defective titles, liens
9 and encumbrances, shall be forever barred from the exercise of
10 such power.
11 (b) Banking powers.--Any title insurance company which
12 possesses the further powers to receive deposits or otherwise to
13 engage in a banking business, and which does not exercise any of
14 these powers for any consecutive period of one year, upon
15 exercising either of these powers again, shall make no further
16 contracts or policies of title insurance.
17 (c) Fiduciary powers.--Any title insurance company which
18 possesses the further powers to act as trustee, guardian,
19 executor, administrator or in any similar fiduciary capacity,
20 and which does not exercise these powers for any consecutive
21 period of one year, upon exercising again any of such further
22 powers shall make no further contracts or policies of title
23 insurance.
24 § 6716. Primary retained liability.
25 (a) Limit of net primary retention.--A title insurance
26 company shall not issue a policy of title insurance for a single
27 transaction, the net primary retained liability under which
28 shall exceed an amount which is equal to its assets, not
29 including agency and escrow funds, less an amount equal to the
30 sum of the minimum capital required by this chapter for a title
19850H1962B2642 - 928 -
1 insurance company, unearned premium reserve and the value of
2 title plant. One or more title insurance companies may assume
3 the liability on a single policy jointly with another title
4 insurance company or companies in excess of this amount if the
5 total amount of insurance does not exceed the aggregate maximum
6 net primary retentions of all companies liable under the
7 insurance, and if none of the companies exceeds the limit of its
8 net primary retention for a single transaction.
9 (b) Primary liability.--A title insurance company shall not
10 issue a policy of title insurance for a single transaction under
11 which its primary liability as coinsurer exceeds the limit of
12 net primary retention prescribed in subsection (a).
13 (c) Secondary liability.--A title insurance company shall
14 not issue a policy of title insurance for a single transaction
15 under which its secondary liability as reinsurer exceeds the
16 limit of net primary retention prescribed in subsection (a),
17 except that if the ceding company or companies retain primary
18 liability at least equal to 10% of the total amount at risk, a
19 title insurance company may issue a policy of reinsurance for a
20 single transaction under which its secondary liability exceeds
21 the limit of net primary retention prescribed in subsection (a).
22 The total amount of its secondary liability for a single
23 transaction shall not exceed an amount which is equal to its
24 assets, not including agency or escrow funds, less an amount
25 equal to the sum of the unearned premium reserve and the value
26 of title plant. One or more title insurance companies may assume
27 the liability on a single policy jointly with another title
28 insurance company or companies in excess of this amount, if the
29 total amount of insurance does not exceed the aggregate maximum
30 net retentions of all companies liable under the insurance and
19850H1962B2642 - 929 -
1 if none of the companies exceeds the limit of its net retention
2 for a single transaction.
3 § 6717. Power to reinsure.
4 Any authorized title insurance company may reinsure all or
5 any part of its liability under one or more of its policy
6 contracts with any authorized title insurance company or
7 companies authorized to insure titles to real estate in any
8 state, if the reinsuring company at all times remains of the
9 same standard of solvency and complies with all other
10 requirements fixed by the law of this Commonwealth for
11 authorized title insurance companies. Any authorized title
12 insurance company shall pay to this Commonwealth taxes required
13 on all business taxable in this Commonwealth and reinsured under
14 this section with any foreign company not authorized to do
15 business in this Commonwealth.
16 § 6718. Special reinsurance.
17 If the risk of a single transaction involving a parcel of
18 real estate situated in this Commonwealth exceeds the total net
19 retention, both primary and secondary, permitted by this chapter
20 for all authorized title insurance companies, and the total
21 reinsurance available from companies authorized to reinsure
22 risks by section 6717 (relating to power to reinsure),
23 reinsurance may be obtained from companies not authorized to
24 reinsure risks in this Commonwealth with the prior approval in
25 writing of the commissioner.
26 § 6719. Licensure of foreign or alien insurers.
27 Any foreign or alien insurance company shall be licensed to
28 transact the business of title insurance in this Commonwealth
29 only if the company is and remains of the same standard of
30 solvency and complies with other requirements under this title
19850H1962B2642 - 930 -
1 for title insurance companies organized and authorized to
2 transact the business of title insurance pursuant to the laws of
3 this Commonwealth. The company shall not be licensed to transact
4 any business in this Commonwealth until it complies with the
5 requisites for doing business under section 3577 (relating to
6 conditions for authorization of foreign or alien companies).
7 § 6720. Resident agents for foreign or alien insurers.
8 A foreign or alien company licensed to do a title insurance
9 business in this Commonwealth shall transact such business only
10 through resident agents in the manner prescribed in section 5510
11 (relating to resident agents for foreign or alien insurance
12 entities).
13 § 6721. Regulation of agents.
14 (a) Disqualifications.--A bank, trust company, bank and
15 trust company or other lending institution, mortgage service,
16 mortgage brokerage or mortgage guaranty company or any officer
17 or employee of any of the foregoing, may not act as an agent of
18 a title insurance company; nor shall any appointed attorney or
19 officer or salaried employee of any title insurance company act
20 as such an agent.
21 (b) Certification.--Every title insurance company shall
22 certify to the commissioner as he shall direct the names of all
23 agents appointed by it in this Commonwealth.
24 (c) Licensure.--Agents of a title insurance company shall be
25 licensed in the manner provided for agents of insurance
26 companies in section 1103 (relating to licenses of agents). If
27 an applicant for an agent's license is an agent of a title
28 insurer or a licensed insurance broker or an attorney at law,
29 the applicant shall not be required to take an examination to
30 qualify for such license. Licenses of title insurance agents
19850H1962B2642 - 931 -
1 shall expire annually at midnight of June 30, unless sooner
2 terminated as the result of severance of business relations
3 between the company and the agent, or unless revoked by the
4 commissioner for cause.
5 (d) Records.--Every agent of a title insurance company shall
6 keep his books, records, accounts and vouchers pertaining to the
7 business of title insurance in such manner that the commissioner
8 may readily ascertain, from time to time, whether or not the
9 agent has complied with this title. Failure to comply with this
10 section shall be a ground for revocation of the agent's license.
11 (e) Replies to inquiries by commissioner.--Every agent of a
12 title insurance company shall promptly reply in writing to any
13 inquiry of the commissioner relative to the agent's conduct of
14 the business of title insurance, and failure to reply shall be a
15 ground for revocation of the agent's license.
16 (f) Prohibited names.--An agent of a title insurance company
17 shall not adopt a firm name containing the words "title," "title
18 company," "title insurance company," "guaranty," "guarantee,"
19 "guaranty company," "guarantee company" or similar combination
20 thereof.
21 (g) Definition.--As used in this section the term "agent"
22 means a person authorized in writing by a title insurance
23 company directly or indirectly:
24 (1) to solicit risks and collect premiums, and to issue
25 or countersign policies in its behalf; or
26 (2) to solicit risks and collect premiums in its behalf.
27 § 6722. Commissions.
28 (a) Attorneys and brokers.--A title insurance company or an
29 agent of a title insurance company may pay a cash commission to
30 an attorney at law in good standing, or a real estate broker
19850H1962B2642 - 932 -
1 licensed in this Commonwealth, for procuring a title insurance
2 for a client in a real estate transaction. A commission may not
3 be paid to an attorney at law in any transaction in which he
4 acts as an approved attorney. An attorney at law or a licensed
5 real estate broker may credit his commission to the account of
6 the client for whom the policy of title insurance was obtained
7 without violating the rebate provisions of this chapter. The
8 cash commission paid by a title insurance company or an agent of
9 a title insurance company shall not exceed the amount set forth
10 in the schedule of commissions filed with the commissioner by
11 the title insurance company.
12 (b) Applicants for title insurance.--A title insurance
13 company or agent or approved attorney of a title insurance
14 company shall not pay, give or award to an applicant for title
15 insurance any other compensation, consideration, benefit or
16 remuneration, directly or indirectly.
17 § 6723. Mergers and consolidations.
18 (a) General rule.--Subject to the provisions of this
19 section, a domestic title insurance company may merge or
20 consolidate with one or more domestic or foreign title insurance
21 companies authorized to transact title insurance in this
22 Commonwealth, by complying with Article IX of the act of May 5,
23 1933 (P.L.364, No.106), known as the Business Corporation Law,
24 relating to merger or consolidation.
25 (b) Approval by commissioner.--A merger or consolidation
26 shall not be effected unless in advance thereof the plan and
27 agreement therefor have been filed with the commissioner. The
28 commissioner shall examine the terms and conditions of the
29 merger or consolidation, and of any exchange of shares or
30 securities pursuant thereto, after holding a hearing at which
19850H1962B2642 - 933 -
1 all persons to whom it is proposed to issue shares or securities
2 in the exchange may appear. After the hearing, the commissioner
3 shall either approve or disapprove the terms and conditions of
4 exchange. The commissioner shall approve within a reasonable
5 time after the filing unless he finds that the plan or
6 agreement:
7 (1) is contrary to law;
8 (2) is inequitable to the stockholders of any title
9 insurance company; or
10 (3) would substantially reduce the security of and
11 services to be rendered to policyholders of the domestic
12 title insurance company in this Commonwealth or elsewhere.
13 (c) Disclosure of consideration.--A director, officer, agent
14 or employee of a title insurance company party to a merger or
15 consolidation shall not receive any fee, commission or other
16 valuable consideration for aiding, promoting or assisting
17 therein except as set forth in the plan or agreement.
18 (d) Notice of disapproval.--If the commissioner does not
19 approve a plan or agreement, he shall notify the title insurance
20 company in writing, specifying his objections in detail.
21 § 6724. Other corporate acquisitions.
22 (a) General rule.--A domestic title insurance company may
23 issue stock in exchange for all or substantially all the assets
24 or stock of a domestic or foreign title insurance or abstract
25 company if a plan or agreement of acquisition has been filed
26 with the commissioner.
27 (b) Approval by commissioner.--The commissioner shall
28 examine the terms and conditions of the plan or agreement and of
29 any exchange of shares or securities pursuant thereto, after
30 holding a hearing at which all persons to whom it is proposed to
19850H1962B2642 - 934 -
1 issue shares or securities in the exchange may appear. After the
2 hearing, the commissioner shall either approve or disapprove the
3 terms and conditions of exchange. The commissioner shall approve
4 within a reasonable time after the filing unless he finds that
5 the plan or agreement:
6 (1) is contrary to law;
7 (2) is inequitable to the stockholders of any title
8 insurance or abstract company involved; or
9 (3) would substantially reduce the security of and
10 service to be rendered to policyholders of the domestic title
11 insurance company in this Commonwealth or elsewhere.
12 (c) Disclosure of consideration.--A director, officer, agent
13 or employee of a title insurance company or abstract company
14 party to an acquisition shall not receive any fee, commission or
15 other valuable consideration for aiding, promoting or assisting
16 therein except as set forth in the plan or agreement.
17 (d) Notice of disapproval.--If the commissioner does not
18 approve a plan or agreement, he shall notify the title insurance
19 company in writing specifying his objections in detail.
20 § 6725. Change in corporate control.
21 (a) Approval by commissioner.--If any person proposes to
22 acquire the controlling capital stock of any domestic title
23 insurance company and thereby change the control of the company,
24 he shall first apply to the commissioner for approval of the
25 change of control. The change in control shall not be effective
26 unless so approved. The application shall contain the name and
27 address of the proposed new owners of the controlling stock.
28 (b) Criteria for approval.--The commissioner shall approve
29 the proposed change of control only after he determines that the
30 proposed new owners of the controlling stock are qualified by
19850H1962B2642 - 935 -
1 character, experience and financial responsibility to control
2 and operate the company in a lawful and proper manner and that
3 the interest of the company stockholders and policyholders and
4 the interest of the public generally will not be jeopardized by
5 the proposed change in ownership and management.
6 (c) Procedure.--If the commissioner does not approve or
7 disapprove the proposed change within 30 days after the date the
8 application was filed with him, the proposed change shall be
9 deemed to be approved as of the expiration of the 30-day period.
10 If the commissioner disapproves the proposed change in control,
11 he shall give written notice thereof to the persons so applying
12 for approval, setting forth his objections.
13 SUBCHAPTER C
14 INVESTMENT AND RESERVES
15 Sec.
16 6731. Financial requirements.
17 6732. Procedure when capital impaired.
18 6733. Unearned premium reserve.
19 6734. Amount of unearned premium reserve.
20 6735. Maintenance of unearned premium reserve.
21 6736. Use of unearned premium reserve.
22 6737. Reserves for unpaid losses and loss expenses.
23 6738. Investment of capital.
24 6739. Investment of surplus.
25 6740. Investment of unearned premium reserve.
26 6741. Other reserves.
27 § 6731. Financial requirements.
28 Every title insurance company shall have a minimum capital,
29 which shall be paid in and maintained, of not less than $250,000
30 and, in addition, paid-in initial surplus at least equal to 50%
19850H1962B2642 - 936 -
1 of its capital.
2 § 6732. Procedure when capital impaired.
3 If the capital of a title insurance company becomes impaired,
4 the title insurance company shall immediately give written
5 notice thereof to the commissioner and shall make no further
6 policies or contracts or reinsurance agreements of title
7 insurance while the impairment exists. The title insurance
8 company shall immediately call upon its stockholders for such
9 amounts as will restore its capital to an amount prescribed by
10 the commissioner. If any stockholder fails to pay the amount
11 called for, after notice personally given or by advertisement,
12 at the time and in the manner the commissioner approves, the
13 title insurance company shall require the return of the original
14 certificates of stock held by the stockholder, or issue new
15 certificates in the proportion as determined by the
16 commissioner, that the ascertained value of the assets bears to
17 the capital existing immediately prior to the impairment, the
18 title insurance company paying for any fractional parts of
19 shares. The directors of the title insurance company, with the
20 prior consent and approval of the commissioner, may create new
21 stock and issue certificates therefor, and dispose of this stock
22 at not less than par for an amount sufficient to make up the
23 original capital, or the commissioner may permit the company to
24 reduce its capital and the par value of its shares in proportion
25 to the extent of the impairment, but the capital shall at no
26 time be reduced to an amount less than that required by law for
27 the organization of the company. In fixing the reduced capital,
28 not more than 50% of the original capital shall be deducted from
29 the assets on hand to be retained as surplus funds, nor shall
30 any part of assets be distributed to stockholders. When the
19850H1962B2642 - 937 -
1 amount of capital prescribed by the commissioner has been
2 restored, the title insurance company shall notify the
3 commissioner who, upon being satisfied that the impairment no
4 longer exists and is not likely to recur, shall authorize the
5 title insurance company in writing to again issue policies or
6 contracts or reinsurance agreements of title insurance.
7 § 6733. Unearned premium reserve.
8 (a) Establishment of reserve.--Every title insurance company
9 shall, in addition to other reserves, establish and maintain a
10 reserve to be known as the "unearned premium reserve" for title
11 insurance, which shall constitute the unearned portions of
12 premiums due or received and shall be charged as a reserve
13 liability of the title insurance company in determining its
14 financial condition.
15 (b) Purpose.--The unearned premium reserve shall be retained
16 by the title insurance company for the protection of the
17 policyholders' interest in policies which have not expired.
18 (c) Distribution.--Except as provided in section 6736
19 (relating to use of unearned premium reserve), assets equal to
20 the amount of the reserve shall not be subject to distribution
21 among depositors or other creditors or stockholders of the title
22 insurance company until all claims of its policyholders or
23 holders of its other title insurance contracts or agreements
24 have been paid in full and all liability on the policies or
25 other title insurance contracts or agreements, whether
26 contingent or actual, has been discharged or lawfully reinsured.
27 Income from the investment of the reserve shall be the
28 unrestricted property of the title insurance company.
29 § 6734. Amount of unearned premium reserve.
30 (a) General rule.--The unearned premium reserve of every
19850H1962B2642 - 938 -
1 title insurance company shall consist of the amount of the
2 unearned premium reserve held as of September 1, 1963, plus all
3 additions required to be made to the reserve by this section,
4 less the withdrawals therefrom as permitted by this section.
5 (b) Additions.--Except as otherwise provided in this
6 subsection, a title insurance company shall add to its unearned
7 premium reserve, in respect to each policy or contract or
8 reinsurance agreement issued by it, a sum of money out of the
9 fees due or received for the title insurance made by it, equal
10 to $1 for each policy or contract or agreement, plus 10¢ for
11 each $1,000 face amount of net retained liability. The company
12 shall each year separately report the amounts so set aside in
13 respect to policies, contracts or agreements written in that
14 year. If substantially the entire outstanding liability of the
15 company is reinsured, the unearned premium reserve of the
16 reinsurer shall be equal in amount to the reserve of the ceding
17 title insurance company in respect to the outstanding liability
18 so reinsured.
19 (c) Relation to net profit.--The amounts set aside as
20 additions to the unearned premium reserve shall be deducted in
21 determining the net profit of any title insurance company.
22 (d) Date assumed.--For the purposes of determining the
23 amounts of the unearned premium reserve that may be withdrawn
24 and the interest of the policyholders therein under section 6736
25 (relating to use of unearned premium reserve), all policies,
26 contracts or reinsurance agreements of title insurance shall be
27 deemed as dated on July 1 in the year of issue.
28 (e) Withdrawals from reserve.--Additions to the unearned
29 premium reserve which have been held for a period of 20 years
30 shall be withdrawn from the unearned premium reserve and shall
19850H1962B2642 - 939 -
1 constitute a part of net profit for the year in which the
2 withdrawal is made.
3 § 6735. Maintenance of unearned premium reserve.
4 If by reason of depreciation in the market value of
5 investments or other cause, the amount of the assets eligible
6 for investment of the unearned premium reserve is on any date
7 less than the amount required to be maintained by law in the
8 reserve, and the deficiency is not promptly cured, the title
9 insurance company shall immediately give written notice thereof
10 to the commissioner. The company shall make no further policies,
11 contracts or reinsurance agreements of title insurance until the
12 amounts of the eligible investments have been restored and until
13 it has received written approval from the commissioner
14 authorizing it to again issue such policies, contracts or
15 agreements.
16 § 6736. Use of unearned premium reserve.
17 (a) General rule.--If a title insurance company becomes
18 insolvent, or is in the process of liquidation or dissolution,
19 or in the possession of the commissioner, such amount of the
20 assets of the title insurance company, equal to the unearned
21 premium reserve as is necessary, shall be used with the written
22 approval of the commissioner to pay for reinsurance of the
23 outstanding liability of the title insurance company upon all
24 policies, contracts or reinsurance agreements of title insurance
25 in force as to which claims for losses by the holders are not
26 then pending. The balance of the unearned premium reserve fund
27 shall be transferred to the general assets of the title
28 insurance company. The assets other than the unearned premium
29 reserve shall be available to pay claims for losses sustained by
30 holders of policies then pending or arising up to the time
19850H1962B2642 - 940 -
1 reinsurance is affected. If claims for losses are in excess of
2 these assets, claims shall be paid out of the assets
3 attributable to the unearned premium reserve.
4 (b) Reinsurance.--The commissioner may enter into a contract
5 with one or more title insurance companies to reinsure all the
6 obligations under outstanding policies of the title insurance
7 company subject to this section in accordance with their terms,
8 covenants and conditions, the cost of the reinsurance to be paid
9 out of the assets of that company.
10 (c) Reinsurance unavailable.--If reinsurance is unavailable,
11 the unearned premium reserve and assets constituting minimum
12 capital remaining after outstanding claims have been paid shall
13 constitute a trust fund, which shall be held by the commissioner
14 for 20 years, out of which claims of policyholders shall be paid
15 as they arise. The balance of this fund shall, at the expiration
16 of 20 years, revert to the general assets of the title insurance
17 company, after reasonable charges for administration of the fund
18 have been charged against the balance by the commissioner.
19 § 6737. Reserves for unpaid losses and loss expenses.
20 Each title insurance company shall establish and maintain, in
21 addition to other reserves, reserves against unpaid losses and
22 against loss expense. The company shall calculate these reserves
23 by making a careful estimate in each case of the loss and loss
24 expense likely to be incurred, by reason of every claim
25 presented or that may be presented, pursuant to notice from or
26 on behalf of the insured, of a title defect in or lien or
27 adverse claim against the title insured, that may result in a
28 loss of cause expense to be incurred for the proper disposition
29 of the claim. The amounts so estimated shall be revised as
30 circumstances warrant. The amounts set aside in these reserves
19850H1962B2642 - 941 -
1 in any year shall be deducted in determining the net profit for
2 such year of the company.
3 § 6738. Investment of capital.
4 (a) General rule.--The capital of a title insurance company
5 shall be invested in the following classes of investment:
6 (1) Government obligations.--Bonds, notes or obligations
7 issued, assumed or guaranteed by the United States or the
8 Dominion of Canada or by any state.
L4L40CM/19850H1962B2642 - 942 -
3 (2) Governmental subdivision or public instrumentality
4 obligations.--Valid and legally authorized bonds, notes or
5 obligations issued, assumed or guaranteed by:
6 (i) Any municipality, school district, poor
7 district or water, sewer, drainage, road or other
8 governmental district or division located in the United
9 States or any state.
10 (ii) Any public instrumentality other than a
11 municipal authority of one or more of the foregoing if,
12 by statutory or other legal requirements applicable
13 thereto, the bonds or other evidences of indebtedness of
14 such instrumentality are payable, as to principal and
15 interest, from taxes levied or by law required to be
16 levied upon all taxable property or all taxable income
17 within the jurisdiction of the governmental unit or
18 units of which it is an instrumentality, or from
19 revenues pledged or otherwise appropriated or by law
20 required to be provided for the purpose of such payment.
21 (iii) Any municipal authority created pursuant to
22 the laws of this Commonwealth if the obligations are not
23 in default as to principal or interest and if:
24 (A) the project for which the obligations were
25 issued is under lease to a school district or school
26 districts;
27 (B) the project for which the obligations were
28 issued is under lease to a municipality or
29 municipalities or subject to a service contract with
30 a municipality or municipalities, pursuant to which
31 the municipal authority will receive lease rentals
19850H1962B2642 - 943 -
1 or service charges available for fixed charges on
2 the obligations, which will average not less than
3 one and one-fifth times the average annual fixed
4 charges of the obligations over the life thereof; or
5 (C) for the period of five fiscal years next
6 preceding the date of acquisition, the income of the
7 authority available for fixed charges has averaged
8 not less than one and one-fifth times the average
9 annual fixed charges of obligations over the life
10 thereof.
11 As used in this subparagraph the term "income available
12 for fixed charges" means income after deducting
13 operating and maintenance expenses, and, unless the
14 obligations are payable in serial, annual maturities, or
15 are supported by annual sinking fund payments,
16 depreciation, but excluding extraordinary nonrecurring
17 items of income or expenses.
18 The term "fixed charges"
19 includes principal, both maturity and sinking fund, and
20 interest on bonded debt.
21 In computing the income
22 available for fixed charges for the purpose of this
23 subparagraph, the income so available of any corporation
24 acquired by any municipal authority may be included,
25 such income to be calculated as though the corporation
26 had been operated by a municipal authority and an
27 equivalent amount of bonded debt were outstanding.
28 The
29 eligibility for investment purposes of obligations of
30 each project of a municipal authority shall be separately
19850H1962B2642 - 944 -
1 considered.
2 (3) Public utility obligations.--Bonds, notes or
3 obligations issued, assumed or guaranteed by any solvent
4 public utility corporation or public utility business trust,
5 incorporated or existing under the laws of the United States
6 or of any state.
7 (4) Other corporate obligations.--Bonds, notes or
8 obligations issued, assumed or guaranteed by any other
9 corporation, including railroads, or business trust,
10 incorporated or existing under the Federal law or the law of
11 any state, whose income available for fixed charges for the
12 period of five fiscal years next preceding the date of
13 investment has averaged not less than one and one-half times
14 its average annual fixed charges applicable to that period.
15 As used in this paragraph the term "income available for
16 fixed charges" means income, after deducting operating and
17 maintenance expenses, depreciation and depletion, and taxes
18 other than Federal or state income taxes, excluding
19 extraordinary nonrecurrng items of income or expense
20 appearing in the regular financial statements of the
21 corporation or business trust.
22 The term "fixed charges"
23 includes interest on funded and unfunded debt and
24 amortization of debt discount and expense.
25 If income is
26 determined in reliance upon consolidated income statements
27 of parent and subsidiary corporations or business trusts,
28 the income shall be determined after provision for Federal
29 and state income taxes of subsidiaries, and after proper
30 allowance for minority stock interest.
19850H1962B2642 - 945 -
1 The required coverage
2 of fixed charges shall be computed on a basis including fixed
3 charges and preferred dividends of subsidiaries, other than
4 those payable by subsidiaries to the parent corporation or
5 business trust, or to other subsidiaries.
6 In applying an income
7 test to any issuing, assuming or guaranteeing corporation or
8 business trust, whether or not in legal existence during the
9 whole of the five-year period next preceding the date of
10 investment, which has at any time after the beginning of the
11 period acquired the assets or the outstanding shares of capital
12 stock of any other corporation or business trust by purchase,
13 merger, consolidation or otherwise, substantially as an
14 entirety, or has been reorganized pursuant to the bankruptcy
15 law, the income of the other predecessor or constituent
16 corporation or business trust or of the corporation or business
17 trust so reorganized, available for interest and dividends for
18 such portion of the period as shall have preceded acquisition
19 or reorganization, may be included in the income of the
20 issuing, assuming or guaranteeing corporation or business trust
21 for such portion of the period as may be determined in
22 accordance with adjusted or pro forma consolidated income
23 statements covering that portion of the period, and giving
24 effect to all stock or shares outstanding and all fixed charges
25 existing immediately after acquisition or reorganization.
26 (5) Trustee, receiver or equipment trust
27 obligations.--
28 (i) Certificates, notes or obligations issued by
29 trustees or receivers of any corporation or business
30 trust created or existing under Federal law or the law
19850H1962B2642 - 946 -
1 of any state, if the corporation or trust, or its
2 assets, are being administered under the direction of
3 any court, and the obligation is adequately secured as
4 to principal and interest.
5 (ii) Equipment trust obligations or certificates,
6 which are adequately secured, or other adequately
7 secured instruments, evidencing an interest in
8 transportation equipment, located within the United
9 States and a right to receive determined portions of
10 rental, purchase or other fixed obligatory payments for
11 the use or purchase of such transportation equipment.
12 (6) Acceptances and bills of exchange.--Bank and
13 bankers' acceptances and other bills of exchange of the kind
14 and maturities made eligible pursuant to law for purchase in
15 the open market by Federal Reserve Banks.
16 (7) Real estate loans.--Ground rents and bonds, notes
17 or other evidences of indebtedness, secured by mortgages or
18 trust deeds upon unencumbered real property located in any
19 state, and in investments in the equity of the seller under
20 contracts for deeds covering the entire balance due on bona
21 fide sales of such real property.
22 A loan guaranteed or
23 insured in full by the Administrator of Veterans' Affairs
24 under the Servicemen's Readjustment Act (Public
25 Law 85-857, 38 U.S.C. § 1801 et seq.) may be subject to a prior
26 encumbrance.
27 (i) Real property shall not be considered to be
28 encumbered within the meaning of this paragraph by
29 reason of the existence of:
30 (A) instruments reserving mineral, oil, water
19850H1962B2642 - 947 -
1 or timber rights, rights-of-way, sewer rights,
2 rights in walls or driveways;
3 (B) liens inferior to the lien securing the
4 loan of the title insurance company or liens for
5 taxes or assessments not yet delinquent;
6 (C) building restrictions or other restrictive
7 covenants; or
8 (D) leases under which rents or profits are
9 reserved to the owner;
10 if the security for the loan is a first lien upon the real
11 property, and if there is no condition or right of reentry
12 or forfeiture under which the lien can be cut off,
13 subordinated or otherwise disturbed.
14 (ii) A mortgage or trust deed, loan or investment
15 in a seller's equity under a contract for deed made or
16 acquired by the title insurance company on any one
17 property shall not at the date of investment exceed
18 two-thirds of the value of the real property securing
19 the loan, or subject to the contract, but this
20 limitation does not apply to a loan which is:
21 (A) Insured by, or for which a commitment to
22 insure has been made by, the Federal Housing
23 Administrator or Commissioner, pursuant to the
24 provisions of the National Housing Act (48 Stat.
25 1247, 12 U.S.C. § 1707 et seq.).
26 (B) Guaranteed by the Administrator of
27 Veterans' Affairs under the Servicemen's
28 Readjustment Act of 1944 (58 Stat. 284) or Public
29 Law 85-857 (72 Stat. 1203, 38 U.S.C. § 1801 et seq)
30 except that if only a portion of a loan is so
19850H1962B2642 - 948 -
1 guaranteed, the limitation shall apply to the
2 portion not so guaranteed or insured by the
3 administrator under these statutes.
4 (C) Upon real estate under lease to a
5 corporation or business trust, incorporated or
6 existing under the law of the United States or any
7 state, whose income available for fixed charges for
8 the period of five fiscal years next preceding the
9 date of investment has averaged not less than one
10 and one-half times its average annual fixed charges
11 applicable to that period, if there is pledged and
12 assigned, as additional security for the loan and
13 for application thereon, sufficient of the rentals
14 payable under the lease to provide for repayment of
15 the loan within the unexpired term of the lease.
16 (D) Upon such terms that the principal thereof
17 will be amortized by repayments of principal at
18 least once in each year in amounts sufficient to
19 repay the loan within a period of not more than 30
20 years, and the loan is upon improved real estate,
21 and at the date investment does not exceed
22 three-quarters of the value of the real estate
23 securing the loan.
24 (8) Purchase money securities.--Purchase money
25 mortgages or similar securities received by it upon the sale
26 or exchange of real property acquired pursuant to paragraph (20).
27 (9) Federal Housing Administrator's
28 debentures.--Debentures issued by the Federal Housing
29 Administrator or Commissioner in settlement of claims
30 pursuant to the National Housing Act (48 Stat.
19850H1962B2642 - 949 -
1 1247, 12 U.S.C. § 1707 et seq.).
2 (10) National mortgage association securities.--Securities
3 of national mortgage associations or similar
4 national mortgage credit institutions organized under the
5 National Housing Act (48 Stat. 1247, 12 U.S.C. § 1707 et seq.).
6 (11) Federal land bank, Federal intermediate credit
7 bank and bank for cooperative securities.--Bonds, debentures
8 and other obligations of Federal land banks, Federal
9 intermediate credit banks or banks for cooperatives issued
10 under the Federal Farm Loan Act (39 Stat. 360, 12 U.S.C. §
11 641 et seq.) or under the Farm Credit Act of 1971 (Public
12 Law 92-181, 12 U.S.C. § 2001 et seq.).
13 (12) Loans upon leaseholds.--Loans upon leasehold
14 estates or unencumbered real estate located in any state but
15 no such loan shall exceed two-thirds of the value of the
16 leasehold at the date of investment, unless:
17 (i) the loan is guaranteed or insured by, or
18 commitment to guarantee or insure the loan has been made
19 by, the Federal Housing Administrator or Commissioner
20 under the National Housing Act (48 Stat.
21 1247, 12 U.S.C. § 1707 et seq.);
22 (ii) the leasehold is of improved real estate and
23 the loan provides for amortization by repayments of
24 principal at least once in each year in amounts
25 sufficient to repay the loan within a period of
26 four-fifths of the unexpired term of the leasehold, but
27 within a period of not more than 30 years, and does not
28 exceed three-fourths of the value of the leasehold at
29 the date of investment; or
30 (iii) the real estate is under lease to a
19850H1962B2642 - 950 -
1 corporation or business trust, incorporated or existing
2 under the laws of the United States or any state, whose
3 income available for fixed charges for the period of
4 five fiscal years next preceding the date of investment
5 has averaged not less than one and one-half times its
6 average annual fixed charges applicable to the period,
7 if there is pledged and assigned as additional security
8 for the loan and for application thereon sufficient of
9 the rentals payable under the lease to provide for
10 repayment of the loan within the unexpired term of the
11 lease.
12 The terms of any loan under this paragraph shall require
13 repayments of principal at least once in each year in
14 amounts sufficient to repay the loan within the term of the
15 leasehold, unexpired at the date of investment, unless a
16 shorter period is required under subparagraph (ii).
17 (13) Savings and loan shares.--Shares of any Federal
18 savings and loan association, or of any building and loan or
19 savings and loan association, to the extent that the
20 withdrawal or repurchasable value of the shares is insured
21 by the Federal Savings and Loan Insurance Corporation under
22 the National Housing Act (48 Stat. 1247, 12 U.S.C. § 1707 et seq.).
23 (14) Federal Savings and Loan Insurance Corporation
24 Obligations.--Bonds, notes or obligations issued, assumed or
25 guaranteed by the Federal Savings and Loan Insurance
26 Corporation under the National Housing Act.
27 (15) Federal Home Loan Bank Obligations.--Bonds, notes
28 or obligations issued, assumed or guaranteed by the Federal
29 Home Loan Bank or the Federal Home Loan Bank Board under the
30 Federal Home Loan Bank Act (47 Stat. 725, 12 U.S.C. § 1421 et seq.).
19850H1962B2642 - 951 -
1 (16) International Bank obligations.--Bonds, notes or
2 obligations issued, assumed or guaranteed by the
3 International Bank for Reconstruction and Development.
4 (17) Business development credit corporation shares.--Shares
5 of state and regional business development credit
6 corporations formed under the law of this Commonwealth.
7 (18) Pennsylvania Housing Finance Agency bonds and
8 notes.--Bonds and notes of the Pennsylvania Housing Finance
9 Agency created by the act of December 3, 1959 (P.L.1688,
10 No.621), known as the Housing Finance Agency Law.
11 (19) Inter-American Development Bank obligations.--Bonds,
12 notes or obligations issued, assumed or guaranteed by
13 the Inter-American Development Bank.
14 (20) Title plant.--A title plant if it keeps at least
15 $250,000 invested in the classes of securities authorized
16 for the investment of capital other than title plant and
17 real estate.
18 The title plant shall be considered an admitted
19 asset at the fair value thereof.
20 In determining the fair
21 value of a title plant, no value shall be attributed to
22 furniture and fixtures, and the real estate in which the
23 title plant is housed shall be carried as real estate.
24 The
25 value of title abstracts, title briefs, copies of
26 conveyances or other documents, indices and other records
27 comprising the title plant, shall be determined by
28 considering the expenses incurred in obtaining them, the age
29 thereof, the cost of replacements less depreciation and all
30 other relevant factors.
19850H1962B2642 - 952 -
1 Once the value of a title plant has
2 been determined, the value may be increased only by the
3 acquisition of another title plant by purchase,
4 consolidation or merger.
5 The value of the title plant shall
6 not be increased by additions made thereto as part of the
7 normal course of abstracting and insuring titles to real
8 estate.
9 Subject to these limitations and with the approval
10 of the commissioner, a title insurance company may enter
11 into agreements with one or more other authorized title
12 insurance companies whereby the companies will participate
13 in the ownership, management and control of a title plant to
14 service the needs of all the companies or the companies may
15 hold stock of a corporation owning and operating a title
16 plant for such purposes if each of the companies
17 participating in the ownership, management and control of
18 the jointly owned title plant keeps the sum of $250,000
19 invested as set forth in this paragraph.
20 (b) Real estate.--Any domestic title insurance company may
21 purchase, receive, hold and convey real estate or any interest
22 therein:
23 (1) required for its convenient accommodation in the
24 transaction of its business with reasonable regard to future
25 needs;
26 (2) acquired in connection with a claim under a policy
27 of title insurance;
28 (3) acquired in satisfaction or on account of loans,
29 mortgages, liens, judgments or decrees, owed to it in the
30 course of its business;
19850H1962B2642 - 953 -
1 (4) acquired in part payment of the consideration of
2 the sale of real property owned by it if the transaction
3 results in a net reduction in the company's investment in
4 real estate; or
5 (5) reasonably necessary for the purpose of maintaining
6 or enhancing the sale value of real property previously
7 acquired or held by it under subparagraph (i), (ii), (iii)
8 or (iv), but no title insurance company shall continue to
9 hold any real estate acquired by it under subparagraph (ii),
10 (iii) or (iv) for more than five years from the date of
11 acquisition thereof unless it obtains the written approval
12 of the commissioner to hold the real estate for a longer
13 period of time.
14 § 6739. Investment of surplus.
15 Money over and above capital, other than the unearned premium
16 reserve, may be invested in the following classes of
17 investments:
18 (1) Investments authorized for capital.--Any of the
19 classes of investment authorized in section 6738 (relating to
20 investment of capital).
21 (2) Corporate stock or shares.--Stock or shares of any
22 solvent corporation, incorporated under the law of the United
23 States or any state or of the Dominion of Canada or any
24 province thereof, including the stock of another title
25 insurance company.
26 (3) Corporate obligations.--Bonds, notes or obligations
27 issued, assumed or guaranteed by any solvent corporation or
28 business trust, incorporated or existing under the law of the
29 United States or any state or of the Dominion of Canada or
30 any province thereof.
19850H1962B2642 - 954 -
1 (4) Canadian governmental subdivision obligations.--
2 Valid and legally authorized bonds, notes or obligations
3 issued, assumed or guaranteed by any province or political
4 subdivision of the Dominion of Canada.
5 (5) Other Loans or investments.--Loans or investments
6 not qualifying or permitted under paragraphs (1) through (4)
7 to an amount not exceeding 5% of the company's admitted
8 assets.
9 § 6740. Investment of unearned premium reserve.
10 The unearned premium reserve of a title insurance company
11 shall be invested in the same classes of investments, other than
12 title plant and real estate, authorized in section 6738
13 (relating to investment of capital), except that one-fourth of
14 the reserve may be invested in preferred or guaranteed stocks or
15 shares of any solvent corporation or business trust,
16 incorporated or existing under the law of the United States or
17 of any state, whose net earnings available for its fixed
18 charges, during either of the two years preceding the date of
19 such investment have been, and during each of the five years
20 preceding such date have averaged, not less than one and one-
21 half times the sum of its average annual fixed charges, as
22 referred to in section 6738(4) and its average annual preferred
23 dividend requirements. For the purposes of this section, the
24 computation refers to the fiscal year immediately preceding the
25 date of acquisition of an investment by the insurer, and the
26 term "preferred dividend requirement" includes cumulative or
27 noncumulative dividends, whether paid, earned or not.
28 § 6741. Other reserves.
29 Reserves other than the unearned premium reserve may be
30 invested in any of the classes of investments authorized in
19850H1962B2642 - 955 -
1 section 6739 (relating to investment of surplus).
2 SUBCHAPTER D
3 RATE REGULATION
4 Sec.
5 6751. Rate filing.
6 6752. Justification for rates.
7 6753. Making of rates.
8 6754. Disapproval of filings.
9 6755. Rating organizations.
10 6756. Deviations.
11 6757. Appeals by minority.
12 6758. Information to be furnished insureds.
13 6759. Hearings and appeals of insureds.
14 6760. Examination of rating organizations.
15 6761. Recording and reporting of loss and expense experience.
16 6762. False or misleading information.
17 § 6751. Rate filing.
18 (a) General rule.--Every title insurance company shall file
19 with the commissioner every manual of classifications, rules,
20 plans, schedules of fees and commissions payable to applicants
21 for title insurance and every modification of any of the
22 foregoing relating to the rates which it proposes to use. Each
23 filing shall state the proposed effective date thereof and shall
24 indicate the character and extent of the coverage contemplated.
25 A title insurance company or agent of a title insurance company
26 shall not charge any fee for any policy or contract of title
27 insurance except in accordance with filings or rates which are
28 in effect for the company or agent of the company as provided in
29 this chapter.
30 (b) Rating organizations.--A title insurance company may
19850H1962B2642 - 956 -
1 satisfy its obligations to make its filings by becoming a member
2 of, or a subscriber to, a licensed rating organization which
3 makes such filings and by authorizing the commissioner to accept
4 such filings on its behalf.
5 (c) Review.--The commissioner shall make such review of the
6 filings as may be necessary to carry out the provisions of this
7 chapter.
8 (d) Waiting period.--Subject to subsections (f) and (g),
9 each filing shall be on file for a period of 30 days before it
10 becomes effective. The commissioner may, upon written notice
11 given within such period to the person making the filing, extend
12 the waiting period for an additional period, not to exceed 30
13 days, to enable him to complete the review of the filing.
14 Further extensions of the waiting period may also be made with
15 the consent of the title insurance company or rating
16 organization making the filing. Upon written application by the
17 company or organization making the filing, the commissioner may
18 authorize a filing or any part thereof which he has reviewed to
19 become effective before the expiration of the waiting period or
20 extension thereof.
21 (e) Effective filings.--Except in the case of rates filed
22 under subsections (f) and (g), a filing which has become
23 effective shall be deemed to meet the requirements of this
24 chapter.
25 (f) Special permission by commissioner.--When the
26 commissioner finds that any rate for a particular kind or class
27 of risk cannot practicably be filed before it is used, or any
28 contract or kind of title insurance, by reason of rarity or
29 peculiar circumstances, does not lend itself to advance
30 determination and filing of rates, he may, under such
19850H1962B2642 - 957 -
1 regulations as he may prescribe, permit the rates to be used
2 without a previous filing and waiting period.
3 (g) Waiver by insured.--Upon the written consent of the
4 insured stating his reasons therefor, filed with the
5 commissioner, a rate in excess of that provided by a filing
6 which might otherwise be deemed applicable may be used on any
7 specific risk. The rate shall become effective when the consent
8 is filed.
9 § 6752. Justification for rates.
10 (a) Statement.--A rate filing shall be accompanied by a
11 statement of the title insurance company or rating organization
12 making the filing, setting forth the basis upon which the rate
13 was fixed and the fees are to be computed. Any filing may be
14 justified by:
15 (1) the experience or judgment of the company or
16 organization making the filing;
17 (2) the experience of other title insurance companies or
18 rating organizations; or
19 (3) any other factors which the company or organization
20 deems relevant.
21 (b) Public inspection.--The statement and justification
22 shall be open to public inspection after the rate to which it
23 applies becomes effective.
24 § 6753. Making of rates.
25 (a) General rule.--Rates shall not be inadequate or unfairly
26 discriminatory, nor shall rates be so excessive as to permit
27 title insurance companies to earn a greater profit, after
28 payment of all taxes upon all income, than is necessary to
29 enable them to earn sufficient amounts to pay their actual
30 expenses and losses arising in the conduct of their title
19850H1962B2642 - 958 -
1 insurance business, plus a reasonable profit.
2 (b) Factors considered.--In making rates, due consideration
3 shall be given to past and prospective loss experience; exposure
4 to loss; underwriting practice and judgment; past and
5 prospective expenses, including commissions paid to agents and
6 applicants for title insurance; a reasonable margin for profit
7 and contingencies; and all other relevant factors both in and
8 outside this Commonwealth. The systems of expense provisions and
9 the amount of expense charged against each class of contract or
10 policy may vary between title insurance companies. Rates may, in
11 the discretion of any title insurance company, be less than the
12 cost of performing the work in the case of smaller risks, and
13 the excess may be charged against the larger risks without
14 rendering the rates unfairly discriminatory.
15 (c) Reasonable profit.--In ascertaining the estimated future
16 earnings of title insurance companies, the commissioner shall
17 utilize a properly weighted cross section of title insurance
18 companies operating in this Commonwealth representative of the
19 average of efficiently operated title insurance companies,
20 including on a weighted basis both title insurance companies
21 having their own title plants and those not operating upon the
22 title plant system. In ascertaining what is a reasonable profit
23 after payment of all taxes on such income, the commissioner
24 shall give due consideration to the following matters:
25 (1) The average rates of profit after payment of taxes
26 on all income earned by other industry generally.
27 (2) The desirability of stability of rate structure.
28 (3) The necessity of insuring through growth in assets
29 in times of high business activity, the financial solvency of
30 title insurance companies in times of economic depression.
19850H1962B2642 - 959 -
1 (4) The necessity for earning sufficient dividends on
2 the stock of title insurance companies to induce capital to
3 be invested therein.
4 § 6754. Disapproval of filings.
5 (a) Standard of review.--A filing or modification thereof
6 shall not be disapproved if the rates in connection therewith
7 meet the requirements of this chapter.
8 (b) Hearing for insurer.--Upon the review at any time by the
9 commissioner of a filing, he shall, before issuing an order of
10 disapproval, hold a hearing upon not less than ten days written
11 notice, specifying the matters to be considered at the hearing,
12 to every title insurance company and rating organization which
13 made the filing. A company or organization may at any time
14 withdraw a filing or a part thereof, subject to the provisions
15 of section 6756 (relating to deviations) in the case of a
16 deviation filing.
17 (c) Hearing for aggrieved parties.--Any person or
18 organization aggrieved with respect to any filing which is in
19 effect, except the company or organization which made the
20 filing, may make written application to the commissioner for a
21 hearing thereon. The application shall specify the grounds to be
22 relied upon. If the commissioner finds that the application may
23 justify relief, he shall, within 30 days after receipt of the
24 application, hold a hearing upon not less than ten days' written
25 notice to the applicant and to every company and organization
26 which made the filing.
27 (d) Decision of commissioner.--If, after the hearing, the
28 commissioner finds that the filing or a part thereof does not
29 meet the requirements of this chapter, he shall issue an order
30 specifying his objections. If the filing has become effective
19850H1962B2642 - 960 -
1 under section 6751 (relating to rate filing) or otherwise, the
2 order shall state the time, within a reasonable period
3 thereafter, at which the filing or part thereof shall be deemed
4 no longer effective. Copies of the order shall be sent to the
5 applicant and to every title insurance company and rating
6 organization affected. The order shall not affect any contract
7 or policy made or issued prior to the expiration of the period
8 set forth in the order.
9 § 6755. Rating organizations.
10 (a) Licensure.--Any person located in or outside this
11 Commonwealth may apply to the commissioner for a license as a
12 rating organization for title insurance companies. The
13 application shall include all of the following:
14 (1) A copy of its constitution, its articles of
15 agreement or association or its certificate of incorporation,
16 and of its bylaws, rules and regulations governing the
17 conduct of its business.
18 (2) A list of its members and subscribers.
19 (3) The name and address of a resident of this
20 Commonwealth upon whom notices or orders of the commissioner
21 or process affecting the rating organization may be served.
22 (4) A statement of its qualifications as a rating
23 organization.
24 If the commissioner finds that the applicant is competent,
25 trustworthy and otherwise qualified to act as a rating
26 organization, and that the documents submitted under paragraph
27 (1) conform to the requirements of law, he shall issue a license
28 authorizing the applicant to act as a rating organization for
29 title insurance. The application shall be granted or denied in
30 whole or in part by the commissioner within 60 days of the date
19850H1962B2642 - 961 -
1 of its filing with him. Licenses issued under to this section
2 shall remain in effect for three years unless sooner suspended
3 or revoked by the commissioner or withdrawn by the licensee. The
4 fee for the license shall be $25. Licenses may be suspended or
5 revoked by the commissioner, after hearing upon notice, if the
6 rating organization ceases to meet the requirements for
7 licensure under this section. Every rating organization shall
8 notify the commissioner promptly of every change in the items
9 listed in paragraph (1), (2) or (3).
10 (b) Subscribers.--Subject to regulations approved by the
11 commissioner, each rating organization shall permit any title
12 insurance company, not a member, to be a subscriber to its
13 rating services. Notices of proposed changes in its regulations
14 shall be given to subscribers. Each rating organization shall
15 furnish its rating services without discrimination to its
16 members and subscribers. The reasonableness of any regulation in
17 its application to subscribers or the refusal of any rating
18 organization to admit a title insurance company as a subscriber
19 shall, at the request of any subscriber or any such title
20 insurance company, be reviewed by the commissioner at a hearing
21 held upon at least ten days' written notice to the rating
22 organization and to the subscriber or title insurance company.
23 If the commissioner finds that the regulation is unreasonable in
24 its application to subscribers, he shall order that the
25 regulation shall not apply to subscribers. If the rating
26 organization fails to grant or reject an application of a title
27 insurance company for subscribership within 30 days after it is
28 made, the title insurance company may request a review by the
29 commissioner as if the application had been rejected. If the
30 commissioner finds that the title insurance company has been
19850H1962B2642 - 962 -
1 refused admittance to the rating organization as a subscriber,
2 without justification, he shall order the rating organization to
3 admit the title insurance company as a subscriber; if he finds
4 that the action of the rating organization was justified, he
5 shall make an order affirming its action.
6 (c) Cooperative activities.--Cooperation among rating
7 organizations, or among rating organizations and title insurance
8 companies, and concert of action among title insurance companies
9 under the same general management and control in rate making or
10 in other matters within the scope of this chapter is permitted,
11 but the filings resulting therefrom are subject to this chapter.
12 The commissioner may review these activities and practices, and
13 if after a hearing he finds that any activity or practice is
14 unfair, unreasonable or otherwise inconsistent with this
15 chapter, he may issue a written order specifying his objections
16 and requiring the discontinuance of the activity or practice.
17 § 6756. Deviations.
18 (a) Deviation filings.--Every member of or subscriber to a
19 rating organization shall adhere to the filings made on its
20 behalf by such organization, except that a title insurance
21 company which is such a member or subscriber may file with the
22 commissioner a uniform percentage of decrease or increase to be
23 applied to any or all elements of the fees produced by the
24 rating system so filed for a class of title insurance which is
25 found by the commissioner to be a proper rating unit for the
26 application of such a uniform decrease or increase, or to be
27 applied to the rates for a particular area, or to be applied to
28 the amount of commissions to be paid.
29 (b) Contents of filings.--The deviation filing shall specify
30 the basis for the modification and shall be accompanied by the
19850H1962B2642 - 963 -
1 data or historical pattern upon which the applicant relies. A
2 copy of the filing and data shall be sent simultaneously to the
3 rating organization.
4 (c) Waiting period.--Each deviation filing shall be on file
5 for 30 days before it becomes effective. The waiting period may
6 be extended in the same manner as under section 6751(d)
7 (relating to rate filing). Upon written application of the
8 person making the filing, the commissioner may authorize a
9 deviation filing or any part thereof to become effective before
10 the expiration of the waiting period or any extension thereof.
11 (d) Effect.--Deviation filings shall be subject to section
12 6754 (relating to disapproval of filings). Each deviation shall
13 be effective for at least one year from the date the deviation
14 is filed unless terminated sooner with the approval of the
15 commissioner or under section 6754.
16 § 6757. Appeals by minority.
17 (a) Right to appeal.--Any member of or subscriber to a
18 rating organization may appeal to the commissioner from any
19 decision of the rating organization approving or rejecting any
20 proposed change in or addition to the filings of the rating
21 organization. The failure of a rating organization to make a
22 decision within 30 days after submission to it of a proposal
23 under this section shall be deemed a rejection of the proposal.
24 (b) Decision by commissioner.--The commissioner shall, after
25 a hearing held upon not less than ten days' written notice to
26 the appellant and to the rating organization, issue an order
27 approving the decision of the rating organization or directing
28 it to give further consideration to the proposal and to take
29 action upon it within 30 days. If the appeal is from a decision
30 of the rating organization rejecting a proposed addition to its
19850H1962B2642 - 964 -
1 filings, he may issue an order directing the rating organization
2 to make an addition to its filings on behalf of its members and
3 subscribers in a manner consistent with his findings, within a
4 reasonable time. If the appeal is from a decision of the rating
5 organization with regard to a rate or a proposed change in or
6 addition to its filings relating to the character and extent of
7 coverage, he shall approve the rate applied by the rating
8 organization or the rate suggested by the appellant, if either
9 rate is in accordance with this chapter. If the appeal is based
10 upon the failure of the rating organization to make a filing on
11 behalf of the member or subscriber which is based on a system of
12 expense provisions which differs, in accordance with section
13 6753(b) (relating to making of rates), from the system of
14 expense provisions included in a filing made by the rating
15 organization, the commissioner shall, if he grants the appeal,
16 order the rating organization to make the requested filing for
17 use by the appellant. In deciding the appeal, the commissioner
18 shall apply the standards set forth in section 6753.
19 § 6758. Information to be furnished insureds.
20 Every rating organization and every title insurance company
21 which makes its own rates shall, within a reasonable time after
22 receiving written request therefor and upon payment of such
23 reasonable charge as it may make, furnish all pertinent
24 information as to the rate to any insured affected by a rate
25 made by it or to the authorized representative of such an
26 insured.
27 § 6759. Hearings and appeals of insureds.
28 Every rating organization and every title insurance company
29 which makes its own rates shall provide reasonable means whereby
30 any person aggrieved by the application of its rating system may
19850H1962B2642 - 965 -
1 be heard, in person or by his authorized representative, on his
2 written request to review the manner in which the rating system
3 has been applied in connection with the insurance afforded him.
4 If the organization or company fails to grant or reject the
5 request within 30 days after it is made, the applicant may
6 proceed as if his application had been rejected. Any party
7 affected by the action the organization or company on such a
8 request may, within 30 days after written notice of the action,
9 appeal to the commissioner, who after a hearing held upon not
10 less than ten days' written notice to the appellant and to the
11 organization or company may affirm or reverse the action.
12 § 6760. Examination of rating organizations.
13 The commissioner shall, at least once in five years, make an
14 examination of each rating organization licensed under this
15 chapter. The reasonable costs of any such examination shall be
16 paid by the organization examined upon presentation to it of a
17 detailed account of these costs. The officer, manager, agents
18 and employees of the organization may be examined at any time
19 under oath and shall exhibit all books, records, accounts,
20 documents or agreements governing its method of operation. The
21 commissioner shall furnish two copies of the examination report
22 to the organization examined and shall notify it that it may,
23 within 20 days thereafter, request a hearing on the report or on
24 any facts or recommendations therein. Before filing a report for
25 public inspection, the commissioner shall grant a hearing to the
26 organization examined. The report of any examination, when filed
27 for public inspection, shall be admissible in evidence in any
28 action or proceeding brought by the commissioner against the
29 organization examined or its officers or agents, and shall be
30 prima facie evidence of the facts stated therein. The
19850H1962B2642 - 966 -
1 commissioner may withhold the report of any examination from
2 public inspection for such time as he deems proper. In lieu of
3 an examination, the commissioner may accept the report of an
4 examination made by the insurance supervisory official of
5 another state pursuant to the law of that state.
6 § 6761. Recording and reporting of loss and expense experience.
7 The commissioner shall promulgate reasonable regulations and
8 statistical plans, reasonably adapted to each of the rating
9 systems on file with him, which may be modified from time to
10 time, and which shall be used by each title insurance company in
11 the recording and reporting of the composition of its business,
12 its loss and countrywide expense experience and those of its
13 title insurance underwriters in order that the experience of all
14 companies may be made available at least annually in such form
15 and detail as necessary to aid him in determining whether rating
16 systems comply with the standards set forth in this chapter.
17 These regulations and plans may also provide for the recording
18 and reporting of expense experience items which are specially
19 applicable to this Commonwealth and are not susceptible of
20 determination by a prorating of countrywide expense experience.
21 In promulgating the regulations and plans, the commissioner
22 shall give due consideration to the rating systems on file with
23 him and, in order that the regulations and plans may be as
24 uniform as practicable among the several states, to the
25 regulations and the form of the plans used for rating systems in
26 other states. The regulations and plans shall be drafted so as
27 not to place an unreasonable burden of expense on any company. A
28 company shall not be required to record or report its expense
29 and loss experience on a classification basis that is
30 inconsistent with the rating system filed by it, nor shall any
19850H1962B2642 - 967 -
1 company be required to report its experience to any agency of
2 which it is not a member or subscriber. The commissioner may
3 designate one or more rating organizations or other agencies to
4 assist him in making compilations of experience information.
5 These compilations shall be made available, subject to
6 reasonable regulations promulgated by the commissioner, to title
7 insurance companies and rating organizations.
8 § 6762. False or misleading information.
9 A person or organization shall not willfully withhold
10 information from, or knowingly give false or misleading
11 information to, the commissioner, any statistical agency
12 designated by the commissioner rating organization, or title
13 insurance company, which will affect the rates or fees
14 chargeable under this chapter.
15 SUBCHAPTER E
16 PENALTIES AND PROCEDURES
17 Sec.
18 6771. Penalties.
19 6772. Hearing procedure.
20 § 6771. Penalties.
21 (a) Fines.--The commissioner may, if he finds that any
22 person or organization has violated this chapter, impose a
23 penalty of not more than $50 for each violation, but if he finds
24 the violation to be willful, he may impose a penalty of not more
25 than $500 for each violation. These penalties may be in addition
26 to any other penalty provided by law.
27 (b) Suspension of license.--The commissioner may suspend the
28 license of any rating organization or title insurance company
29 which fails to comply with an order of the commissioner within
30 the time limited by the order or any extension thereof granted
19850H1962B2642 - 968 -
1 by the commissioner. The commissioner shall not suspend the
2 license of any organization or company for failure to comply
3 with an order until the time prescribed for an appeal therefrom
4 has expired, or if an appeal has been taken, until the order has
5 been affirmed. The commissioner may determine when a suspension
6 of license shall become effective, and it shall remain in effect
7 for the period fixed by him, unless he modifies or rescinds the
8 suspension, or until the order upon which the suspension is
9 based is modified, rescinded or reversed by a court.
10 (c) Procedure.--A penalty shall not be imposed or license
11 suspended or revoked except upon a written order of the
12 commissioner, stating his findings, made after a hearing held
13 upon not less than ten days' written notice to the person or
14 organization, specifying the alleged violation.
15 § 6772. Hearing procedure.
16 (a) Right to hearing.--Any title insurance company, rating
17 organization or other person aggrieved by any action of the
18 commissioner, except disapproval of a filing or a part thereof,
19 or by any regulation promulgated by the commissioner, may file a
20 complaint with the commissioner and have a hearing thereon
21 before him. Pending the hearing and the decision thereon, the
22 commissioner may suspend or postpone the effective date of his
23 previous action, rule or regulation.
24 (b) Procedure.--All hearings provided for under this chapter
25 shall be conducted, and the decision of the commissioner on the
26 issue or filing involved shall be rendered, pursuant to Title 2
27 (relating to administrative law and procedure).
28 CHAPTER 69
29 HEALTH AND ACCIDENT INSURANCE
30 Subchapter
19850H1962B2642 - 969 -
1 A. Preliminary Provisions
2 B. General Requirements
3 C. Group, Blanket and Franchise Policies
4 D. Minimum Standards for Individual Policies
5 E. Medicare Supplement Insurance
6 SUBCHAPTER A
7 PRELIMINARY PROVISIONS
8 Sec.
9 6901. Definitions.
10 6902. Organizations included.
11 6903. Applicability.
12 6904. Nonconforming policies.
13 6905. Penalties.
14 § 6901. Definitions.
15 The following words and phrases when used in this chapter
16 shall have the meanings given to them in this section unless the
17 context clearly indicates otherwise.
18 "Forms." Policies, contracts, riders, endorsements and
19 applications relating to health and accident insurance subject
20 to approval by the commissioner under section 3515 (relating to
21 approval of contracts by commissioner), 7524 (relating to rates
22 and contracts), 7525 (relating to reports and examinations) or
23 7729 (relating to rates and contracts).
24 "Health and accident insurance." Insurance written under
25 section 3302(a)(1) or (2) or (c)(2) (relating to authorized
26 classes of insurance) or 4326 (relating to power to write
27 insurance). The term does not include life insurance, annuities
28 or insurance subject to Chapter 65 (relating to credit
29 insurance).
30 "Insured." Includes a person other than the insured with a
19850H1962B2642 - 970 -
1 proper insurable interest who makes application for or owns a
2 policy covering the insured, with respect to the person's rights
3 under the policy to the indemnities, benefits and rights
4 provided therein.
5 "Policy." A contract issued by any person providing health
6 and accident insurance, including such a subscriber contract
7 issued by a health plan corporation or nonprofit health service
8 plan or such a certificate issued by a fraternal benefit
9 society, and including any riders or endorsements and the
10 application, if attached.
11 § 6902. Organizations included.
12 For the purposes of this chapter, health plan corporations,
13 nonprofit health service plans and fraternal benefit societies
14 are deemed to be engaged in the business of insurance.
15 § 6903. Applicability.
16 (a) Workmen's compensation insurance.--Subchapters B
17 (relating to general requirements) and C (relating to group,
18 blanket and franchise policies) do not apply to any policy of
19 workmen's compensation insurance.
20 (b) Group health and accident policies.--Policies of group
21 health and accident insurance, as defined in section 6931
22 (relating to definitions), shall not be subject to section
23 6904(b) and (c) (relating to nonconforming policies), sections
24 6911 (relating to approval of policies by commissioner) through
25 6915 (relating to relationship of policy provisions) or section
26 6922(b) and (c) (relating to applications for insurance).
27 However, no policy of group health and accident insurance shall
28 be issued or delivered in this Commonwealth unless the form of
29 the policy is filed with the commissioner and approved by him in
30 accordance with section 6911.
19850H1962B2642 - 971 -
1 (c) Life insurance.--Subchapters B and C do not apply to
2 life insurance, endowment or annuity contracts, or contracts
3 supplemental thereto, which contain only such provisions
4 relating to health and accident insurance as:
5 (1) provide additional benefits in case of death by
6 accidental means; and
7 (2) operate to safeguard such contracts against lapse,
8 or to give a special surrender value or special benefit or an
9 annuity if the insured or annuitant becomes totally and
10 permanently disabled, as defined by the contract or
11 supplemental contract.
12 (d) Liability insurance.--This subchapter and Subchapter B
13 do not apply to any insurance of medical, hospital, surgical and
14 funeral expenses and disability and death benefits issued with
15 and supplemental to a liability insurance policy as referred to
16 in section 3302(c)(4) (relating to authorized classes of
17 insurance).
18 § 6904. Nonconforming policies.
19 (a) Requirements of other jurisdictions.--Any policy of a
20 foreign or alien insurer, when delivered or issued for delivery
21 to any person in this Commonwealth, may contain any provision
22 which is not less favorable to the insured or the beneficiary
23 than the provisions of Subchapter B (relating to general
24 requirements) or C (relating to group, blanket and franchise
25 policies) and which is required by the law of the state under
26 which the insured is organized. Any policy of a domestic insurer
27 may, when issued for delivery in any other state or country,
28 contain any provision permitted or required by the law of the
29 other state or country.
30 (b) Certain policy provisions.--A policy provision which is
19850H1962B2642 - 972 -
1 not subject to section 6913 (relating to mandatory policy
2 provisions) or 6914 (relating to optional policy provisions)
3 shall not make a policy, or any portion thereof, less favorable
4 in any respect to the insured or the beneficiary than the
5 provisions thereof which are subject to Subchapter B or C.
6 (c) Policy conflicting with chapter.--A policy delivered or
7 issued for delivery to any person in this Commonwealth in
8 violation of Subchapter B or C shall be held valid but shall be
9 construed as provided therein. When any provision in a policy is
10 in conflict with Subchapter B or C, the rights and duties of the
11 insurer, the insured and the beneficiary shall be governed by
12 the provisions thereof.
13 § 6905. Penalties.
14 (a) Criminal.--Any insurer, or any officer or agent thereof,
15 which issues or delivers a policy to any person in this
16 Commonwealth or which alters any written application for
17 insurance, in violation of Subchapter B (relating to general
18 requirements) or C (relating to group, blanket and franchise
19 policies), commits a misdemeanor of the third degree and, upon
20 conviction, shall be sentenced to pay a fine of not more than
21 $300 for each offense.
22 (b) Civil.--The commissioner may take any one or more of the
23 following courses of action:
24 (1) Revoke the license of any foreign or alien insurer,
25 or of any agent thereof, who violates Subchapter B or C.
26 (2) Impose a penalty of not more than $1,000 for each
27 violation of Subchapter B or C.
28 Before the commissioner takes any action under this section, he
29 shall give written notice to the person accused of the
30 violation, stating specifically the nature thereof and fixing a
19850H1962B2642 - 973 -
1 time and place, at last ten days thereafter, when a hearing of
2 the matter shall be held. After the hearing or upon failure of
3 the accused to appear at the hearing, the commissioner shall
4 impose the penalty.
5 SUBCHAPTER B
6 GENERAL REQUIREMENTS
7 Sec.
8 6911. Approval of policies by commissioner.
9 6912. Formal requirements.
10 6913. Mandatory policy provisions.
11 6914. Optional policy provisions.
12 6915. Relationship of policy provisions.
13 6916. Coverage of certain services.
14 6917. Coverage of newborn children.
15 6918. Licensed medical treatment.
16 6919. Services of nurse midwives.
17 6920. Age limits.
18 6921. Cost-of-living increases.
19 6922. Applications for insurance.
20 6923. Preservation of rights of insurer.
21 6924. Discrimination.
22 § 6911. Approval of policies by commissioner.
23 An insurer shall not issue or deliver any policy to any
24 person in this Commonwealth unless a copy of the form thereof,
25 and of the classification of risks and the premium rates
26 pertaining thereto, has been filed with and formally approved by
27 the commissioner. If the commissioner notifies the insurer
28 filing the form that it does not comply with the requirements of
29 law, specifying his objections in writing, the insurer shall not
30 issue any policy in that form.
19850H1962B2642 - 974 -
1 § 6912. Formal requirements.
2 (a) General rule.--A policy shall not be issued or delivered
3 to any person in this Commonwealth unless each of the following
4 requirements is complied with:
5 (1) The entire money and other considerations therefor
6 and the time when the insurance takes effect and terminates
7 shall be stated in the policy.
8 (2) The policy shall purport to insure only one person,
9 except that, upon the application of an adult head of a
10 family who shall be deemed the policyholder, a policy may
11 insure, originally or by amendment, any two or more eligible
12 members of that family, including husband, wife, dependent
13 children or any children under a specified age, which shall
14 not exceed 19 years, and any other person dependent upon the
15 policyholder.
16 (3) The style, arrangement and appearance of the policy
17 shall give no undue prominence to any portion of the text.
18 Unless every printed portion of the text of the policy and of
19 any endorsements or attached papers is plainly printed in
20 light-face type of a style in general use, the size of the
21 type throughout the form shall be uniform and not less than
22 ten-point with a lower-case unspaced alphabet length not less
23 than 120-point. For the purposes of this paragraph the term
24 "text" includes all printed matter except the name and
25 address of the insurer, name or title of the policy, a brief
26 description, if any, and captions and subcaptions.
27 (4) The exceptions and reductions of indemnity shall be
28 set forth in the policy. Except for the exceptions and
29 reductions set forth in sections 6913 (relating to mandatory
30 policy provisions) and 6914 (relating to optional policy
19850H1962B2642 - 975 -
1 provisions), these may be printed, at the insurer's option,
2 either included with the benefit provision to which they
3 apply or under an appropriate caption, such as "exceptions"
4 or "exceptions and reductions". If an exception or reduction
5 specifically applies only to a particular benefit of the
6 policy, a statement of the exception or reduction shall be
7 included with the benefit provision to which it applies.
8 (5) Each form, including riders and endorsements, shall
9 be identified by a form number in the lower left-hand corner
10 of the first page.
11 (6) The policy shall contain no provision purporting to
12 make any portion of the charter, rules, constitution or
13 bylaws of the insurer a part of the policy unless the portion
14 is set forth in full in the policy, except for a statement of
15 rates or classification of risks, or short-rate table filed
16 with the commissioner.
17 (7) If the policy is entitled or referred to as
18 "noncancelable," the policy shall be automatically renewable
19 until age 60 upon payment of the required premiums by the
20 insured.
21 (8) A policy delivered or issued for delivery after
22 January 1, 1968, under which coverage of a dependent of a
23 policyholder terminates at a specified age, with respect to
24 an unmarried child covered by the policy prior to the
25 attainment of 19 years of age, who is incapable of self-
26 sustaining employment by reason of mental retardation or
27 physical handicap, becomes so incapable prior to attainment
28 of 19 years of age and is chiefly dependent upon the
29 policyholder for support and maintenance, shall not so
30 terminate while the policy remains in force and the dependent
19850H1962B2642 - 976 -
1 remains in such condition, if the policyholder has within 31
2 days of the dependent's attainment of the limiting age
3 submitted proof of the dependent's incapacity. This paragraph
4 does not require an insurer to insure a dependent who is a
5 mentally retarded or physically handicapped child if the
6 policy is underwritten on evidence of insurability based on
7 health factors set forth in the application or where the
8 dependent does not satisfy the conditions of the policy as to
9 any requirement for evidence of insurability or other
10 provisions of the policy, satisfaction of which is required
11 for coverage thereunder to take effect. In any such case the
12 terms of the policy shall apply with regard to the coverage
13 or exclusion from coverage of the dependent.
14 (9) Except for a single premium nonrenewable policy, the
15 policy form shall have prominently printed thereon a notice
16 that the policyholder shall be permitted to return the policy
17 within ten days of its delivery and to have the premium paid
18 refunded if after examination of the policy the policyholder
19 is not satisfied with it for any reason. If a policyholder,
20 pursuant to this notice, returns the policy to the insurer at
21 its home or branch office or to the agent through whom it was
22 purchased, it shall be deemed void from the beginning, and
23 the parties shall be in the same position as if no policy had
24 been issued.
25 (b) Policy on insured in other state.--If any policy is
26 issued by a domestic insurer for delivery to a person residing
27 in another state, and if the official having responsibility for
28 the administration of the insurance statutes of the other state
29 has advised the commissioner that any such policy is not subject
30 to approval or disapproval by the official, the commissioner may
19850H1962B2642 - 977 -
1 by ruling require that the policy comply with subsection (a) and
2 sections 6913 (relating to mandatory policy provisions) through
3 6915 (relating to relationship of policy provisions).
4 § 6913. Mandatory policy provisions.
5 (a) General rule.--Except as provided in section 6915(a)
6 (relating to relationship of policy provisions), each such
7 policy delivered or issued for delivery to any person in this
8 Commonwealth shall contain the provisions specified in this
9 subsection in the words in which the provision appears in this
10 section, except that the insurer may, at its option, substitute
11 for one or more of these provisions corresponding provisions of
12 different wording approved by the commissioner which are in each
13 instance not less favorable in any respect to the insured or the
14 beneficiary. These provisions shall be preceded individually by
15 the caption appearing in this subsection or, at the option of
16 the insurer, by such appropriate individual or group captions or
17 subcaptions as the commissioner approves.
18 (b) Complete integration.--There shall be a provision as
19 follows:
20 Entire contract; changes: This policy, including the
21 endorsements and the attached papers, if any, constitutes
22 the entire contract of insurance. No change in this
23 policy shall be valid until approved by an executive
24 officer of the insurer and unless such approval be
25 endorsed hereon or attached hereto. No agent has
26 authority to change this policy or to waive any of its
27 provisions.
28 (c) Time limitation defenses.--
29 (1) There shall be a provision as follows:
30 Time Limit on Certain Defenses: After three years
19850H1962B2642 - 978 -
1 from the date of issue of this policy no
2 misstatements, except fraudulent misstatements, made
3 by the applicant in the application for such policy
4 shall be used to void the policy or to deny a claim
5 for loss incurred or disability (as defined in the
6 policy) commencing after the expiration of such
7 three-year period.
8 (2) The policy provision set forth in paragraph (1)
9 shall not affect any legal requirement for avoidance of a
10 policy or denial of a claim during the initial three-year
11 period, nor shall it limit the application of section
12 6914(b), (c), (d) and (e) (relating to optional policy
13 provisions) in the event of misstatement with respect to age
14 or occupation or other insurance.
15 (3) In a policy where the premiums are payable weekly,
16 the words "if such application is made a part of the policy"
17 may be inserted in the policy provision set forth in
18 paragraph (1) between the word "policy" and the word "shall"
19 immediately following.
20 (4) A policy which the insured has the right to continue
21 in force subject to its terms by the timely payment of
22 premium until at least 50 years of age, or in the case of a
23 policy issued after 44 years of age, for at least five years
24 from its date of issue, may contain in lieu of the policy
25 provision set forth in paragraph (1) the following provision,
26 from which the clause in parentheses may be omitted at the
27 insurer's option:
28 Incontestable: After this policy has been in force
29 for a period of three years during the lifetime of
30 the insured (excluding any period during which the
19850H1962B2642 - 979 -
1 insured is disabled), it shall become incontestable
2 as to the statements contained in the application.
3 (d) Prior condition.--
4 (1) There shall be a provision as follows:
5 Prior condition: No claim for loss incurred or
6 disability (as defined in the policy) commencing
7 after three years from the date of issue of this
8 policy shall be reduced or denied on the ground that
9 a disease or physical condition not excluded from
10 coverage by name or specific description effective on
11 the date of loss had existed prior to the effective
12 date of coverage of this policy.
13 (2) In policies whereon the premiums are payable weekly,
14 the words "or from the date of any reinstatement thereof" may
15 be inserted in the policy provision set forth in paragraph
16 (1) between the word "policy" and the word "shall"
17 immediately following.
18 (e) Grace period.--
19 (1) There shall be a provision as follows:
20 Grace Period: A grace period of (insert a number not
21 less than "7" for weekly premium policies, "10" for
22 monthly premium policies and "31" for all other
23 policies) days will be granted for the payment of
24 each premium falling due after the first premium,
25 during which grace period the policy shall continue
26 in force.
27 (2) A policy which contains a cancellation provision may
28 add at the end of the provision set forth in paragraph (1)
29 "subject to the right of the insurer to cancel in accordance
30 with the cancellation provision hereof."
19850H1962B2642 - 980 -
1 (3) A policy in which the insurer reserves the right to
2 refuse any renewal shall have, at the beginning of the
3 provision set forth in paragraph (1): "Unless not less than
4 five days prior to the premium due date the insurer has
5 delivered to the insured or has mailed to his last address as
6 shown by the records of the insurer written notice of its
7 intention not to renew this policy beyond the period for
8 which the premium has been accepted, ..."
9 (f) Reinstatement.--
10 (1) There shall be a provision as follows:
11 Reinstatement: If any renewal premium be not paid
12 within the time granted the insured for payment, a
13 subsequent acceptance of premium by the insurer or by
14 any agent duly authorized by the insurer to accept
15 such premium, without requiring in connection
16 therewith an application for reinstatement, shall
17 reinstate the policy: Provided, however, That if the
18 insurer or such agent requires an application for
19 reinstatement and issues a conditional receipt for
20 the premium tendered, the policy will be reinstated
21 upon approval of such application by the insurer or,
22 lacking such approval, upon the 45th day following
23 the date of such conditional receipt unless the
24 insurer has previously notified the insured in
25 writing of its disapproval of such application. The
26 reinstated policy shall cover only loss resulting
27 from such accidental injury as may be sustained after
28 the date of reinstatement and loss due to such
29 sickness as may begin more than ten days after such
30 date. In all other respects the insured and insurer
19850H1962B2642 - 981 -
1 shall have the same rights thereunder as they had
2 under the policy immediately before the due date of
3 the defaulted premium, subject to any provisions
4 endorsed hereon or attached hereto in connection with
5 the reinstatement. Any premium accepted in connection
6 with a reinstatement shall be applied to a period for
7 which premium has not been previously paid, but not
8 to any period more than 60 days prior to the date of
9 reinstatement.
10 (2) The last sentence of the provision set forth in
11 paragraph (1) may be omitted:
12 (i) from any policy which the insured has the right
13 to continue in force subject to its terms by the timely
14 payment of premiums:
15 (A) until at least 50 years of age; or
16 (B) in the case of a policy issued after 44
17 years of age for at least five years from the date of
18 its issue; or
19 (ii) from any policy on which the premiums are
20 payable weekly.
21 (g) Notification of claim.--
22 (1) There shall be a provision as follows:
23 Notice of Claim: Written notice of claim must be
24 given to the insurer within 20 days after the
25 occurrence or commencement of any loss covered by the
26 policy, or as soon thereafter as is reasonably
27 possible. Notice given by or on behalf of the insured
28 or the beneficiary to the insurer at (insert the
29 location of such office as the insurer may designate
30 for the purpose), or to any authorized agent of the
19850H1962B2642 - 982 -
1 insurer, with information sufficient to identify the
2 insured, shall be deemed notice to the insurer.
3 (2) In a policy whereon the premiums are payable weekly,
4 the first sentence of the policy provision set forth in
5 paragraph (1) may read:
6 Written notice of claim must be given to the insurer
7 within ten days of the commencement of any
8 nonhospital confining sickness covered by the policy
9 and within 20 days after the occurrence or
10 commencement of any other loss covered by the policy,
11 or as soon thereafter as is reasonably possible.
12 (3) In a policy providing a loss-of-time benefit which
13 may be payable for at least two years, an insurer may, at its
14 option, insert the following between the first and second
15 sentences of the policy provision set forth in paragraph (1):
16 Subject to the qualifications set forth below, if the
17 insured suffers loss of time on account of disability
18 for which indemnity may be payable for at least two
19 years, he shall, at least once in every six months
20 after having given notice of claim, give to the
21 insurer notice of continuance of said disability,
22 except in the event of legal incapacity.
23 (4) The period of six months following any filing of
24 proof by the insured or any payment by the insurer on account
25 of such claim or any denial of liability in whole or in part
26 by the insurer shall be excluded in applying the policy
27 provision set forth in paragraph (3). Delay in the giving of
28 such notice under that provision shall not impair the
29 insured's right to any indemnity which would otherwise have
30 accrued during the period of six months preceding the date on
19850H1962B2642 - 983 -
1 which the notice is actually given.
2 (h) Claim forms.--There shall be a provision as follows:
3 Claim Forms: The insurer, upon receipt of a notice of
4 claim, will furnish to the claimant such forms as are
5 usually furnished by it for filing proofs of loss. If
6 such forms are not furnished within 15 days after the
7 giving of such notice, the claimant shall be deemed to
8 have complied with the requirements of this policy as to
9 proof of loss upon submitting, within the time fixed in
10 the policy for filing proofs of loss, written proof
11 covering the occurrence, the character and the extent of
12 the loss for which claim is made.
13 (i) Proofs of loss.--There shall be a provision as follows:
14 Proofs of Loss: Written proof of loss must be furnished
15 to the insurer at its said office in case of claim for
16 loss for which this policy provides any periodic payment
17 contingent upon continuing loss within 90 days after the
18 termination of the period for which the insurer is liable
19 and in case of claim for any other loss within 90 days
20 after the date of such loss. Failure to furnish such
21 proof within the time required shall not invalidate nor
22 reduce any claim if it was not reasonably possible to
23 give proof within such time, provided such proof is
24 furnished as soon as reasonably possible and in no event,
25 except in the absence of legal capacity, later than one
26 year from the time proof is otherwise required.
27 (j) Time of payment of claims.--There shall be a provision
28 as follows:
29 Time of Payment of Claims: Indemnities payable under this
30 policy for any loss other than loss for which this policy
19850H1962B2642 - 984 -
1 provides any periodic payment will be paid immediately
2 upon receipt of due written proof of such loss. Subject
3 to due written proof of loss, all accrued indemnities for
4 loss for which this policy provides periodic payment will
5 be paid .............. (insert period for payment, which
6 must not be less frequently than monthly) and any balance
7 remaining unpaid upon the termination of liability will
8 be paid immediately upon receipt of due written proof.
9 (k) Manner of payment of claims.--
10 (1) There shall be a provision as follows:
11 Payment of Claims: Indemnity for loss of life will be
12 payable in accordance with the beneficiary
13 designation and the provisions respecting such
14 payment which may be prescribed herein and effective
15 at the time of payment. If no such designation or
16 provision is then effective, such indemnity shall be
17 payable to the estate of the insured. Any other
18 accrued indemnities unpaid at the insured's death
19 may, at the option of the insurer, be paid either to
20 such beneficiary or to such estate. All other
21 indemnities will be payable to the insured.
22 (2) The policy provisions set forth in subparagraphs (i)
23 and (ii), or either of them, may be included with the policy
24 provision set forth in paragraph (1) at the option of the
25 insurer:
26 (i) If any indemnity of this policy shall be payable
27 to the estate of the insured, or to an insured or
28 beneficiary who is a minor or otherwise not competent to
29 give a valid release, the insurer may pay such indemnity,
30 up to an amount not exceeding $ (insert an amount which
19850H1962B2642 - 985 -
1 shall not exceed $1,000), to any relative by blood or
2 connection by marriage of the insured or beneficiary who
3 is deemed by the insurer to be equitably entitled
4 thereto. Any payment made by the insurer in good faith
5 pursuant to this provision shall fully discharge the
6 insurer to the extent of such payment.
7 (ii) Subject to any written direction of the insured
8 in the application or otherwise, all or a portion of any
9 indemnities provided by this policy on account of
10 hospital, nursing, medical or surgical services may, at
11 the insurer's option and, unless the insured requests
12 otherwise in writing, not later than the time of filing
13 proofs of such loss, be paid directly to the hospital or
14 person rendering such services; but it is not required
15 that the service be rendered by a particular hospital or
16 person.
17 (l) Physical examinations.--There shall be a provision as
18 follows:
19 Physical Examinations and Autopsy: The insurer at its own
20 expense shall have the right and opportunity to examine
21 the person of the insured when and as often as it may
22 reasonably require during the pendency of a claim
23 hereunder and to make an autopsy in case of death where
24 it is not forbidden by law.
25 (m) Legal actions.--There shall be a provision as follows:
26 Legal Actions: No action at law or in equity shall be
27 brought to recover on this policy prior to the expiration
28 of 60 days after written proof of loss has been furnished
29 in accordance with the requirements of this policy. No
30 such action shall be brought after the expiration of
19850H1962B2642 - 986 -
1 three years after the time written proof of loss is
2 required to be furnished.
3 (n) Change of beneficiary.--
4 (1) There shall be a provision as follows:
5 Change of Beneficiary: Unless the insured makes an
6 irrevocable designation of beneficiary, the right to
7 change of beneficiary is reserved to the insured and
8 the consent of the beneficiary or beneficiaries shall
9 not be requisite to surrender or assignment of this
10 policy or to any change of beneficiary or
11 beneficiaries, or to any other changes in this
12 policy.
13 (2) The first clause of the policy provision set forth
14 in paragraph (1), relating to the irrevocable designation of
15 beneficiary, may be omitted at the insurer's option.
16 (o) Common carriers.--The provisions contained in
17 subsections (b), (f), (j) and (l) may be omitted from ticket
18 policies sold only to passengers by common carriers.
19 § 6914. Optional policy provisions.
20 (a) General rule.--Except as provided in section 6915(a)
21 (relating to relationship of policy provisions), a policy issued
22 or delivered to any person in this Commonwealth shall not
23 contain provisions respecting the matters set forth in this
24 section unless the provisions are in the words appearing in this
25 section. However, the insurer may use in lieu of any such
26 provision a corresponding provision of different wording
27 approved by the commissioner, which is not less favorable in any
28 respect to the insured or the beneficiary. Any such provision
29 contained in the policy shall be preceded individually by the
30 appropriate caption appearing in this subsection or, at the
19850H1962B2642 - 987 -
1 option of the insurer, by such appropriate individual or group
2 captions or subcaptions as the commissioner approves.
3 (b) Change of occupation.--The provision on change of
4 occupation shall be as follows:
5 Change of Occupation: If the insured be injured or
6 contract sickness after having changed his occupation to
7 one classified by the insurer as more hazardous than that
8 stated in this policy or while doing for compensation
9 anything pertaining to an occupation so classified, the
10 insurer will pay only such portion of the indemnities
11 provided in this policy as the premium paid would have
12 purchased at the rates and within the limits fixed by the
13 insurer for such more hazardous occupation. If the
14 insured changes his occupation to one classified by the
15 insurer as less hazardous than that stated in this
16 policy, the insurer, upon receipt of proof of such change
17 of occupation, will reduce the premium rate accordingly,
18 and will return the excess pro rata unearned premium from
19 the date of change of occupation or from the policy
20 anniversary date immediately preceding receipt of such
21 proof, whichever is the more recent. In applying this
22 provision, the classification of occupational risk and
23 the premium rates shall be such as have been last filed
24 by the insurer prior to the occurrence of the loss for
25 which the insurer is liable or prior to date of proof of
26 change in occupation with the state official having
27 supervision of insurance in the state where the insured
28 resided at the time this policy was issued; but if such
29 filing was not required, then the classification of
30 occupational risk and the premium rates shall be those
19850H1962B2642 - 988 -
1 last made effective by the insurer in such state prior to
2 the occurrence of the loss or prior to the date of proof
3 of change in occupation.
4 (c) Misstatement of age.--The provision on misstatement of
5 age shall be as follows:
6 Misstatement of Age: If the age of the insured has been
7 misstated, all amounts payable under this policy shall be
8 such as the premium paid would have purchased at the
9 correct age.
10 (d) Other insurance in the same insurer.--The provision on
11 other insurance by the insured in the same insurer shall be as
12 follows:
13 Other Insurance in This Insurer: If an accident or
14 sickness or accident and sickness policy or policies
15 previously issued by the insurer to the insured be in
16 force concurrently herewith, making the aggregate
17 indemnity for (insert type of coverage or coverages) in
18 excess of $ (insert maximum limit of indemnity or
19 indemnities), the excess insurance shall be void and all
20 premiums paid for such excess shall be returned to the
21 insured or to his estate or, in lieu thereof, insurance
22 effective at any one time on the insured under a like
23 policy or policies in this insurer is limited to the one
24 such policy elected by the insured, his beneficiary or
25 his estate, as the case may be, and the insurer will
26 return all premiums paid for all other such policies.
27 (e) Insurance with other insurers.--
28 (1) The provision on insurance by the insured with other
29 insurers shall be as follows, except as provided in paragraph
30 (3):
19850H1962B2642 - 989 -
1 Insurance with Other Insurers: If there be other
2 valid coverage, not with this insurer, providing
3 benefits for the same loss on a provision of service
4 basis or on an expense incurred basis and of which
5 this insurer has not been given written notice prior
6 to the occurrence or commencement of loss, the only
7 liability under any expense incurred coverage of this
8 policy shall be for such proportion of the loss as
9 the amount which would otherwise have been payable
10 hereunder plus the total of the like amounts under
11 all such other valid coverages for the same loss of
12 which this insurer had notice bears to the total like
13 amounts under all valid coverages for such loss, and
14 for the return of such portion of the premiums paid
15 as shall exceed the pro rata portion for the amount
16 so determined. For the purpose of applying this
17 provision when other coverage is on a provision of
18 service basis, the "like amount" of such other
19 coverage shall be taken as the amount which the
20 services rendered would have cost in the absence of
21 such coverage.
22 (2) If the policy provision set forth in paragraph (1)
23 is included in a policy which also contains the policy
24 provision set forth in paragraph (3), there shall be added to
25 the caption of the policy provision set forth in paragraph
26 (1) the phrase "--------- Expense Incurred Benefits".
27 (3) The following provision may appear in addition to or
28 in lieu of the provision set forth in paragraph (1):
29 Insurance with Other Insurers: If there be other
30 valid coverage, not with this insurer, providing
19850H1962B2642 - 990 -
1 benefits for the same loss on other than an expense
2 incurred basis and of which this insurer has not been
3 given written notice prior to the occurrence or
4 commencement of loss, the only liability for such
5 benefits under this policy shall be for such
6 proportion of the indemnities otherwise provided
7 hereunder for such loss as the like indemnities of
8 which the insurer had notice (including the
9 indemnities under this policy) bear to the total
10 amount of all like indemnities for such loss, and for
11 the return of such portion of the premium paid as
12 shall exceed the pro rata portion for the indemnities
13 thus determined.
14 (4) If the policy provision set forth in paragraph (3)
15 is included in a policy which also contains the policy
16 provision set forth in paragraph (1), there shall be added to
17 the caption of the policy provision set forth in paragraph
18 (3) the phrase "------------ Other Benefits".
19 (5) The insurer may include in the provisions set forth
20 in this subsection a definition of "other valid coverage",
21 approved as to form by the commissioner, which definition
22 shall be limited in subject matter to coverage provided by
23 organizations subject to regulation by insurance law or by
24 insurance authorities of this or any other state or any
25 province of the Dominion of Canada, and to any other coverage
26 the inclusion of which is approved by the commissioner. In
27 the absence of this definition, the term shall not include
28 group insurance, or benefits provided by union welfare plans
29 or by employer or employee benefit organizations. For the
30 purpose of applying the policy provisions set forth in this
19850H1962B2642 - 991 -
1 subsection with respect to any insured, any amount of benefit
2 provided for the insured pursuant to any compulsory benefit
3 statute, including any workmen's compensation or employers'
4 liability statute, whether provided by a governmental agency
5 or otherwise, shall be deemed to be "other valid coverage" of
6 which the insurer has had notice. In applying these policy
7 provisions, third-party liability coverage shall not be
8 included as "other valid coverage".
9 (f) Relation of earnings to insurance.--
10 (1) The provision on relation of earnings to insurance
11 shall be as follows:
12 Relation of Earnings to Insurance: If the total
13 monthly amount of loss of time benefits promised for
14 the same loss under all valid loss of time coverage
15 upon the insured, whether payable on a weekly or
16 monthly basis, shall exceed the monthly earnings of
17 the insured at the time disability commenced or his
18 average monthly earnings for the period of two years
19 immediately preceding a disability for which claim is
20 made, whichever is the greater, the insurer will be
21 liable only for such proportionate amount of such
22 benefits under this policy as the amount of such
23 monthly earnings or such average monthly earnings of
24 the insured bears to the total amount of monthly
25 benefits for the same loss under all such coverage
26 upon the insured at the time such disability
27 commences and for the return of such part of the
28 premiums paid during such two years as shall exceed
29 the pro rata amount of the premiums for the benefits
30 actually paid hereunder; but this shall not operate
19850H1962B2642 - 992 -
1 to reduce the total monthly amount of benefits
2 payable under all such coverage upon the insured
3 below the sum of $200 or the sum of the monthly
4 benefits specified in such coverages, whichever is
5 less, nor shall it operate to reduce benefits other
6 than those payable for loss of time.
7 (2) The policy provision set forth in paragraph (1) may
8 be inserted only in a policy which the insured has the right
9 to continue in force subject to its terms by the timely
10 payment of premiums until at least 50 years of age or, in the
11 case of a policy issued after 44 years of age, for at least
12 five years from its date of issue.
13 (3) The insurer may include in the policy provision set
14 forth in paragraph (1) a definition of "valid loss of time
15 coverage", approved as to form by the commissioner, which
16 definition shall be limited in subject matter to coverage
17 provided by governmental agencies or by organizations subject
18 to regulation by insurance law or by insurance authorities of
19 this or any other state or any province of the Dominion of
20 Canada, or to any other coverage the inclusion of which may
21 be approved by the commissioner, or any combination of such
22 coverages. In the absence of this definition, the term shall
23 not include any coverage provided for such insured pursuant
24 to any compulsory benefit statute, including any workmen's
25 compensation or employers; liability statute, or benefits
26 provided by union welfare plans or by employer or employee
27 benefit organizations.
28 (g) Unpaid premium.--The provision on setoff of unpaid
29 premium shall be as follows:
30 Unpaid Premium: Upon the payment of a claim under this
19850H1962B2642 - 993 -
1 policy, any premium then due and unpaid or covered by any
2 note or written order may be deducted therefrom.
3 (h) Cancellation.--The provision on cancellation of the
4 policy shall be as follows:
5 Cancellation: The insurer may cancel this policy at any
6 time by written notice delivered to the insured, or
7 mailed to his last address as shown by the records of the
8 insurer, stating when, not less than five days
9 thereafter, such cancellation shall be effective; and
10 after the policy has been continued beyond its original
11 term, the insured may cancel this policy at any time by
12 written notice delivered or mailed to the insurer,
13 effective upon receipt or on such later date as may be
14 specified in such notice. In the event of cancellation,
15 the insurer will return promptly the unearned portion of
16 any premium paid. If the insured cancels, the earned
17 premium shall be computed by the use of the short-rate
18 table last filed with the state official having
19 supervision of insurance in the state where the insured
20 resided when the policy was issued. If the insurer
21 cancels, the earned premium shall be computed pro rata.
22 Cancellation shall be without prejudice to any claim
23 originating prior to the effective date of cancellation.
24 (i) Conformity with state statutes.--The provision on
25 conformity of the policy with state statutes shall be as
26 follows:
27 Conformity with State Statutes: Any provision of this
28 policy which, on its effective date, is in conflict with
29 the statutes of the state in which the insured resides on
30 such date, is hereby amended to conform to the minimum
19850H1962B2642 - 994 -
1 requirements of such statutes.
2 (j) Illegal activity.--The provision on denial of coverage
3 for claims arising from illegal activity shall be as follows:
4 Illegal Occupation: The insurer shall not be liable for
5 any loss to which a contributing cause was the insured's
6 commission of or attempt to commit a felony, or to which
7 a contributing cause was the insured's being engaged in
8 an illegal occupation.
9 (k) Intoxicants and narcotics.--The provision on denial of
10 coverage for claims arising from the use of intoxicants and
11 narcotics shall appear as follows:
12 Intoxicants and Narcotics: The insurer shall not be
13 liable for any loss sustained or contracted in
14 consequence of the insured's being intoxicated, or under
15 the influence of any narcotic unless administered on the
16 advice of a physician.
17 § 6915. Relationship of policy provisions.
18 (a) Inapplicable or inconsistent provisions.--If any policy
19 provision referred to in section 6913 (relating to mandatory
20 policy provisions) or 6914 (relating to optional policy
21 provisions) is in whole or in part inapplicable to or
22 inconsistent with the coverage provided by a particular form of
23 policy, the insurer, with the approval of the commissioner,
24 shall omit from the policy any inapplicable provision or part of
25 a provision, and shall modify any inconsistent provision or part
26 of the provision.
27 (b) Order of certain policy provisions.--The provisions
28 which are the subject of sections 6913 and 6914, or any
29 corresponding provisions which are used in lieu thereof under
30 those sections, may be printed in the consecutive order of the
19850H1962B2642 - 995 -
1 provisions in those sections or, at the option of the insurer,
2 any such provision may appear as a unit in any part of the
3 policy, with other provisions to which it is logically related,
4 provided the resulting policy shall not be in whole or in part
5 unintelligible, ambiguous or likely to mislead a person to whom
6 the policy is offered, delivered or issued.
7 § 6916. Coverage of certain services.
8 (a) Psychological services.--This subsection applies to
9 every group individual policy delivered or issued for delivery
10 in this Commonwealth. Whenever such a policy provides for
11 reimbursement for any psychologically necessary service which is
12 within those areas for which the psychologist is licensed
13 pursuant to the act of March 23, 1972 (P.L.136, No.52), referred
14 to as the Psychologists License Act, the insured or any other
15 person covered by the policy, contract or certificate shall be
16 entitled to reimbursement for such service whether the service
17 is performed by a physician or a psychologist operating within
18 those area for which he is licensed. Public hearings shall be
19 held prior to the promulgation of any substantial regulation
20 under this section, or substantial change thereof. The hearing
21 shall be transcribed and cross-examination of all witnesses
22 shall be permitted in accordance with law.
23 (b) Optometric services.--Whenever any insurer, under any
24 policy or plan of insurance, or any self-insured health or
25 welfare plan, provides for a service or for the reimbursement of
26 a service to or on behalf of any of its individual or group
27 policyholders or subscribers or any other person or groups,
28 which service is within the lawful scope of practice of a
29 licensed optometrist, the person rendering such service or such
30 policyholder, subscriber or other person shall be entitled to
19850H1962B2642 - 996 -
1 the same reimbursement for the service whether the service is
2 performed by a licensed physician or by a licensed optometrist.
3 Under any such contract, policy or plan which pays on the basis
4 of usual, customary and reasonable charges or on some similar
5 basis, only the method of determining the amount of
6 reimbursement shall be the same. Unless the policy provides
7 otherwise, there shall be no reimbursement for ophthalmic
8 materials, lenses, eyeglasses or appurtenances thereto.
9 § 6917. Coverage of newborn children.
10 (a) General rule.--All health insurance policies providing
11 coverage on an expense incurred basis and service or indemnity
12 type contracts issued by a nonprofit corporation subject to
13 Chapter 43 (relating to Fraternal Benefit Society Code of 1972),
14 75 (relating to hospital plan corporations) or 77 (relating to
15 professional health services plan corporations) and all health
16 services provided by plans operating under Chapter 73 (relating
17 to health maintenance organizations) shall also provide that the
18 health insurance benefits or health services applicable shall be
19 payable with respect to a newborn child of the insured or
20 subscriber the moment of birth.
21 (b) Policy provisions.--The coverage for newborn children
22 shall consist of coverage of injury or sickness, including the
23 necessary care and treatment of medically diagnosed congenital
24 defects, birth abnormalities, prematurity and routine nursery
25 care, but need not include routine well-baby care, immunizations
26 and medical examinations or tests not necessary for the
27 treatment of a covered injury, illness, defect, deformity or
28 disease except to the extent that these coverages are provided
29 the insured or for dependent children under the same class of
30 coverage.
19850H1962B2642 - 997 -
1 (c) Notice of birth.--If payment of a specific premium or
2 subscription fee is required to provide coverage for a child,
3 the policy or contract may require that notification of birth of
4 a newborn child and payment of the required premium or fees
5 shall be furnished to the insurer or nonprofit service or
6 indemnity corporation within 31 days after the date of birth in
7 order to have the coverage continue beyond that 31-day period.
8 § 6918. Licensed medical treatment.
9 Notwithstanding any provision of any policy of insurance or
10 self-insured health or welfare plan providing benefits whenever
11 the policy or plan provides for reimbursement for any service
12 which may be legally performed by a person licensed under the
13 law of this Commonwealth for the practice of medicine,
14 osteopathy, dentistry, chiropractic podiatry, physical therapy
15 or midwifery reimbursement under the policy or plan shall not be
16 denied when the service is rendered by a person so licensed.
17 § 6919. Services of nurse midwives.
18 (a) Applicability.--This section applies to all policies of
19 health and accident insurance and all private and public
20 programs for health services and facilities reimbursement,
21 including, but not limited to, any such reimbursement programs
22 operated by the Commonwealth.
23 (b) Reimbursement for services.--Whenever a policy or
24 program within subsection (a) provides for reimbursement for any
25 health care service which is within those areas of practice for
26 which a midwife may be licensed in this Commonwealth or in the
27 state where the service is delivered, or for the cost of
28 birthing facilities, the insured or any other person covered
29 thereby shall be entitled to reimbursement for the service or
30 use of the facilities whenever the service is performed by a
19850H1962B2642 - 998 -
1 licensed nurse midwife or other person licensed to perform such
2 services. Whenever the service is performed by a licensed
3 certified nurse midwife and reimbursed by a professional health
4 services corporation, the licensed certified nurse midwife shall
5 have such rights of participation, plan admission and
6 registration as are granted by the professional health services
7 plan corporation under Chapter 77 (relating to professional
8 health services plan corporations) to a physician or osteopath
9 performing such service. When payment is made for health care
10 services performed by a licensed certified nurse midwife, no
11 payment or reimbursement shall be payable to a physician or
12 osteopath for the service performed by the licensed nurse
13 midwife.
14 § 6920. Age limits.
15 If any policy contains a provision establishing, as an age
16 limit or otherwise, a date after which the coverage provided by
17 the policy will not be effective, and if the date falls within a
18 period for which a premium is accepted by the insurer or if the
19 insurer accepts a premium after that date, the coverage provided
20 by the policy will continue in force subject to any right of
21 cancellation until the end of the period for which premium has
22 been accepted. If the age of the insured has been misstated and
23 if, according to the correct age of the insured, the coverage
24 provided by the policy would not have become effective, or would
25 have ceased prior to the acceptance of such premium or premiums,
26 then the liability of the insurer shall be limited to the
27 refund, upon request, of all premiums paid for the period not
28 covered by the policy.
29 § 6921. Cost-of-living increases.
30 A claim for benefits for loss of time from the insured
19850H1962B2642 - 999 -
1 person's occupation, under a group or individual policy issued
2 or renewed in this Commonwealth, shall not be reduced by reason
3 of any cost-of-living increase, designated as such under the
4 Social Security Act (49 Stat. 620, 42 U.S.C. § 301 et seq.), if
5 the cost-of-living increase occurs while the policy's benefits
6 are payable for that claim.
7 § 6922. Applications for insurance.
8 (a) False statements.--The falsity of any statement in the
9 application for any policy shall not bar the right to recover
10 thereunder, unless the false statement was made with intent to
11 deceive or unless the statement materially affected either the
12 acceptance of the risk or the hazard assumed by the insurer.
13 (b) Inclusion of representations in policy.--The insured
14 shall not be bound by any statement made in an application for a
15 policy unless a copy of the application is attached to or
16 endorsed on the policy when issued as a part thereof. If any
17 policy delivered or issued for delivery to any person in this
18 Commonwealth is reinstated or renewed, and the insured or the
19 beneficiary or assignee of the policy makes written request to
20 the insurer for a copy of the application for reinstatement or
21 renewal, the insurer shall, within 15 days after the receipt of
22 the request at its home office or any branch office of the
23 insurer, deliver or mail a copy of the application to the person
24 making the request. If the copy is not delivered or mailed, the
25 insurer shall not introduce the application as evidence in any
26 action or proceeding regarding the policy.
27 (c) Alterations.--An alteration of any written application
28 for any policy shall not be made by any person other than the
29 applicant without his written consent, except that insertions
30 may be made by the insurer, for administrative purposes only, in
19850H1962B2642 - 1000 -
1 such manner as to indicate clearly that the insertions are not
2 to be ascribed to the applicant.
3 § 6923. Preservation of rights of insurer.
4 The acknowledgment by any insurer of the receipt of notice
5 given under any policy, the furnishing of forms for filing
6 proofs of loss, the acceptance of such proofs or the
7 investigation of any claim thereunder shall not operate as a
8 waiver of any of the rights of the insurer in defense of any
9 claim arising under the policy.
10 § 6924. Discrimination.
11 Insurers shall not discriminate between individuals of the
12 same class in the amount of premiums or rates charged for any
13 policy, in the benefits payable thereon, in the terms or
14 conditions of the policy or in any other manner.
15 SUBCHAPTER C
16 GROUP, BLANKET AND FRANCHISE POLICIES
17 Sec.
18 6931. Definitions.
19 6932. Required provisions for group health and accident
20 policies.
21 6933. Provision for direct payment.
22 6934. Conversion privileges.
23 6935. Blanket health and accident insurance.
24 6936. Companies authorized to write policies.
25 § 6931. Definitions.
26 The following words and phrases when used in this subchapter
27 shall have the meanings given to them in this section unless the
28 context clearly indicates otherwise:
29 "Blanket health and accident insurance." That form of health
30 and accident insurance covering groups of persons under a policy
19850H1962B2642 - 1001 -
1 or contract issued:
2 (1) To any common carrier or to any operator, owner or
3 lessee of a means of transportation, who shall be deemed the
4 policyholder, covering all persons or all persons of a class
5 who may become passengers on the common carrier or means of
6 transportation.
7 (2) To an employer, who shall be deemed the
8 policyholder, covering all employees, dependents or guests
9 defined by reference to specified hazards incident to the
10 activities or operations of the employer or that class of
11 employees, dependents or guests.
12 (3) To a school or other institution of learning, camp
13 or sponsor thereof, or to the head or principal thereof, who
14 or which shall be deemed the policyholder, covering students
15 or campers and which may cover supervisors and employees.
16 (4) In the name of any religious, charitable,
17 recreational, educational or civic organization, which shall
18 be deemed the policyholder, covering participants in
19 activities sponsored by the organization.
20 (5) To a sports team or sponsors thereof, which shall be
21 deemed the policyholder, covering members, officials and
22 supervisors.
23 (6) To cover any other risk or class of risks, which in
24 the discretion of the commissioner may be properly eligible
25 for blanket health and accident insurance. The discretion of
26 the commissioner may be exercised on the basis of an
27 individual risk or class of risks, or both.
28 "Franchise health and accident insurance." That form of
29 health and accident insurance issued to:
30 (1) Five or more employees of any corporation,
19850H1962B2642 - 1002 -
1 partnership or individual employer or any governmental
2 corporation, agency or department thereof.
3 (2) Ten or more members, employees or employees of
4 members of any trade or professional association, labor union
5 or any other association having had an active existence for
6 at least two years, if the association or union has a
7 constitution or bylaws and is formed in good faith for
8 purposes other than that of obtaining insurance, and if the
9 persons, with or without their dependents, are issued the
10 same form of an individual policy, varying only as to amounts
11 and kinds of coverage applied for by such persons under an
12 arrangement whereby the premiums on such policies may be paid
13 to the insurer periodically by the employer, with or without
14 payroll deductions, or by the association for its members or
15 by some designated person acting on behalf of such employer
16 or association.
17 For the purposes of this definition the term "employees"
18 includes the officers, managers and employees of the employer
19 and the individual proprietor or partners, if the employer is an
20 individual proprietor or partnership.
21 "Group health and accident insurance." That form of health
22 and accident insurance covering groups of persons defined in
23 this section with or without one or more members of their
24 families or one or more of their dependents, or covering one or
25 more members of the families or one or more dependents of such
26 groups or persons and issued upon the following basis:
27 (1) Under a policy issued to an employer or trustees of
28 a fund established by an employer, who shall be deemed the
29 policyholder insuring at least ten employees of such employer
30 for the benefit of persons other than the employer. As used
19850H1962B2642 - 1003 -
1 in this paragraph the term "employees" means the officers,
2 managers and employees of the employer, the individual
3 proprietor or partner, if the employer is an individual
4 proprietor or partnership, the officers, managers and
5 employees of subsidiary or affiliated corporations, the
6 individual proprietors, partners and employees of individuals
7 and firms, if the business of the employer and the individual
8 or firm is under common control through stock ownership,
9 contract or otherwise, and the term includes retired
10 employees. A policy issued to insure employees of a public
11 body may provide that the term "employees" shall include
12 elected or appointed officials.
13 (2) Under a policy issued to an association, including a
14 labor union, which has a constitution and bylaws and which
15 has been organized and is maintained in good faith for
16 purposes other than that of obtaining insurance insuring at
17 least 25 members, employees or employees of members of the
18 association including retired employees, for the benefit of
19 persons other than the association or its officers or
20 trustees.
21 (3) Under a policy issued to the trustees of a fund
22 established by two or more employers in the same industry or
23 by one or more labor unions or by one or more employers and
24 one or more labor unions or by an association as defined in
25 paragraph (2), which trustees shall be deemed the
26 policyholder to insure employees of the employers or members
27 of the unions or such association for the benefit of persons
28 other than the employers or the unions or such association.
29 As used in this paragraph the term "employees" includes the
30 officers, managers and employees of the employer and the
19850H1962B2642 - 1004 -
1 individual proprietor or partners, if the employer is an
2 individual proprietor or partnership, and shall include
3 retired employees. The policy may provide that the term
4 "employees" shall include the trustees or their employees, or
5 both, if their duties are principally connected with such
6 trusteeship.
7 (4) Under a policy issued to any person or organization
8 to which a policy of group life insurance may be issued or
9 delivered in this Commonwealth to insure any class or classes
10 of individuals that could be insured under the group life
11 policy.
12 (5) Under a policy issued to cover any other
13 substantially similar group, which in the discretion of the
14 commissioner may be subject to the issuance of a policy of
15 group health and accident insurance.
16 (6) A policy delivered or issued for delivery on or
17 after January 1, 1968, under which coverage of a dependent of
18 an employee or other member of the insured group terminates
19 at a specified age, with respect to an unmarried child
20 covered by the policy prior to the attainment of 19 years of
21 age who is incapable of self-sustaining employment by reason
22 of mental retardation or physical handicap, who becomes so
23 incapable prior to the attainment of 19 years of age and who
24 is chiefly dependent upon the employee or member for support
25 and maintenance, shall not so terminate while the insurance
26 of the employee or member remains in force and the dependent
27 remains in such condition, if the insured employee or member
28 has within 31 days of the dependent's attainment of the
29 termination age submitted proof of the dependent's
30 incapacity. This paragraph does not require an insurer to
19850H1962B2642 - 1005 -
1 insure such a dependent if the dependent does not satisfy the
2 conditions of the group policy as to any requirements for
3 evidence of insurability or other provisions as stated in the
4 group policy required for coverage thereunder to take effect;
5 in any such case the terms of the policy shall apply with
6 regard to the coverage or exclusion from coverage of the
7 dependent.
8 § 6932. Required provisions for group health and accident
9 policies.
10 Each group health and insurance policy shall contain in
11 substance the following provisions:
12 (1) A provision that, in the absence of fraud, all
13 statements made by any applicant, the policyholder or an
14 insured person shall be deemed representations and not
15 warranties and that no statement made for the purpose of
16 effecting insurance shall avoid the insurance or reduce
17 benefits, unless contained in a written instrument signed by
18 the policyholder or the insured person, a copy of which has
19 been furnished to the policyholder, to the insured person or
20 his beneficiary.
21 (2) A provision that the insurer will furnish to the
22 policyholder, for delivery to each employee or member of the
23 insured group, an individual certificate setting forth, in
24 summary form, a statement of the essential features of the
25 insurance coverage of the employee or member and to whom
26 benefits thereunder are payable. If dependents are included
27 in the coverage, only one certificate need be issued for each
28 family unit.
29 (3) A provision that to the group originally insured may
30 be added from time to time eligible new employees, members or
19850H1962B2642 - 1006 -
1 dependents, as the case may be, in accordance with the terms
2 of the policy.
3 § 6933. Provision for direct payment.
4 Any group health and accident insurance policy may provide
5 that all or any portion of any indemnities provided by the
6 policy, on account of hospital, nursing, medical or surgical
7 services, may at the insurer's option be paid directly to the
8 hospital or person rendering the services, but the policy may
9 not require that the service be rendered by a particular
10 hospital or person. Payment so made shall discharge the
11 insurer's obligation with respect to the amount of insurance so
12 paid.
13 § 6934. Conversion privileges.
14 (a) Right to conversion.--A group health and accident
15 insurance policy delivered or issued for delivery in this
16 Commonwealth which provides hospital, surgical or major medical
17 expense insurance, or any combination of these coverages, on an
18 expense incurred basis, unless it is a policy which provides
19 indemnity benefits or benefits for specific diseases or for
20 accidental injuries only, shall provide that an employee or
21 member whose insurance under the group policy has been
22 terminated for any reason, including discontinuance of the group
23 policy in its entirety or with respect to an insured class, and
24 who has been continuously insured under the group policy, and
25 under any group policy providing similar benefits which it
26 replaces, for at least three months immediately prior to
27 termination, shall be entitled to have issued to him by the
28 insurer a policy of health insurance, referred to in this
29 subchapter as the "converted policy." An employee or member
30 shall not be entitled to have a converted policy issued to him
19850H1962B2642 - 1007 -
1 if termination of his insurance under the group policy occurred
2 because he failed to pay any required contribution, or if any
3 discontinued group coverage was replaced by similar group
4 coverage within 31 days.
5 (b) Terms of converted policies.--The issuance of a
6 converted policy shall be subject to the following conditions:
7 (1) Written application for the converted policy shall
8 be made and the first premium paid to the insurer not later
9 than 31 days after the termination.
10 (2) The converted policy shall be issued without
11 evidence of insurability.
12 (3) The premium on the individual policy shall be at the
13 insurer's then customary rate applicable to the form and
14 amount of the individual policy, to the class of risk to
15 which the person then belongs and to the age he has attained
16 on the effective date of the individual policy.
17 (4) The effective date of the converted policy shall be
18 the day following the termination of insurance under the
19 group policy.
20 (5) The converted policy shall cover the employee or
21 member and his dependents who were covered by the group
22 policy on the date of termination of insurance. At the option
23 of the insurer, a separate converted policy may be issued to
24 cover any dependent.
25 (6) The insurer shall not be required to issue a
26 converted policy covering any person if the person is or
27 could be covered by Medicare under the Health Insurance for
28 the Aged Act, Title XVIII of the Social Security Act (Public
29 Law 89-97, 42 U.S.C. § 1395 et seq.). The insurer shall not
30 be required to issue a converted policy covering any person
19850H1962B2642 - 1008 -
1 if:
2 (i) (A) the person is covered for similar benefits
3 by another hospital, surgical, medical or major
4 medical expense insurance policy or hospital or
5 medical service subscriber contract or medical
6 practice or other prepayment plan or by any other
7 plan or program;
8 (B) the person is eligible for similar benefits,
9 whether or not covered therefor, under any
10 arrangement of coverage for individuals in a group,
11 whether on an insured or uninsured basis; or
12 (C) similar benefits are provided for or
13 available to the person under any state or Federal
14 law; and
15 (ii) the benefits provided under any of the sources
16 referred to in subparagraph (i) for the person, together
17 with the benefits provided by the converted policy, would
18 result in overinsurance according to the insurer's
19 standards.
20 The insurer's standards must bear some reasonable
21 relationship to actual health care costs in the area in which
22 the insured lives at the time of conversion and must be filed
23 with the commissioner prior to their use in denying coverage.
24 (7) A converted policy may include a provision whereby
25 the insurer may request information in advance of any premium
26 due date of the policy of any person covered thereunder as to
27 whether similar benefits are available to the person through
28 a source referred to in paragraph (6)(i).
29 (8) The converted policy may provide that the insurer
30 may refuse to renew the policy or the coverage of any person
19850H1962B2642 - 1009 -
1 insured thereunder for the following reasons only:
2 (i) Overinsurance as described in paragraph (6)(ii)
3 would result or the converted policyholder fails to
4 provide the requested information with respect to
5 possible overinsurance.
6 (ii) Fraud or material misrepresentation in applying
7 for any benefits under the converted policy.
8 (iii) Eligibility of the insured person for Medicare
9 coverage under the Health Insurance for the Aged Act,
10 Title XVIII of the Social Security Act (Public Law 89-97,
11 42 U.S.C. § 1395 et seq.) or under any other Federal or
12 state law providing for benefits similar to those
13 provided by the converted policy.
14 (iv) Other reasons approved by the commissioner.
15 (9) An insurer shall not be required to issue a
16 converted policy which provides benefits in excess of those
17 provided under the group policy from which conversion is
18 made.
19 (10) The converted policy shall not exclude a
20 preexisting condition not excluded by the group policy.
21 However, the converted policy may provide that any hospital,
22 surgical or medical benefits payable thereunder may be
23 reduced by the amount of any such benefits payable under the
24 group policy after the termination of the individual's
25 insurance thereunder. The converted policy may also provide
26 that during the first policy year the benefits payable under
27 the converted policy, together with the benefits payable
28 under the group policy, shall not exceed those that would
29 have been payable had the individual insurance under the
30 group policy remained in force.
19850H1962B2642 - 1010 -
1 (11) Subject to the provisions and conditions of this
2 title, if the group insurance policy from which conversion is
3 made insures the employee or member for basic hospital or
4 surgical expense insurance, the employee or member shall be
5 entitled to obtain a converted policy providing, at his
6 option, coverage on an expense incurred basis under Plan A, B
7 or C meeting the following requirements:
8 (i) Plan A:
9 (A) Hospital room and board daily expense
10 benefits in a maximum dollar amount approximating the
11 average semiprivate rate charged in metropolitan
12 areas of this Commonwealth, for a maximum duration of
13 70 days.
14 (B) Miscellaneous hospital expense benefits of a
15 maximum amount of ten times the hospital room and
16 board daily expense benefits.
17 (C) Surgical operation expense benefits
18 according to a surgical schedule consistent with
19 those customarily offered by the insurer under group
20 or individual health insurance policies and providing
21 a maximum benefit of $800.
22 (ii) Plan B:
23 (A) Hospital room and board daily expense
24 benefits in a maximum dollar amount equal to 75% of
25 the maximum dollar amount determined for Plan A, for
26 a maximum duration of 70 days.
27 (B) Miscellaneous hospital expense benefits of a
28 maximum amount of ten times the hospital room and
29 board daily expense benefits.
30 (C) Surgical operation expense benefits
19850H1962B2642 - 1111 -
1 according to a surgical schedule consistent with
2 those customarily offered by the insurer under group
3 or individual health insurance policies and providing
4 a maximum benefit of $600.
5 (iii) Plan C:
6 (A) Hospital room and board daily expense
7 benefits in a maximum dollar amount equal to 50% of
8 the maximum dollar amount determined for Plan A, for
9 a maximum duration of 70 days.
10 (B) Miscellaneous hospital benefits of a maximum
11 amount of ten times the hospital room and board daily
12 expense benefits.
13 (C) Surgical operation expense benefits
14 according to a surgical schedule consistent with
15 those customarily offered by the insurer under group
16 or individual health insurance policies and providing
17 a maximum benefit of $400.
18 (iv) The maximum dollar amounts in Plan A shall be
19 determined by the commissioner and may be redetermined by
20 him, from time to time, as to converted policies issued
21 subsequent to the redetermination. A redetermination
22 shall not be made more often than once in three years.
23 The maximum dollar amounts in Plans A, B and C shall be
24 rounded to the nearest multiple of $10.
25 (v) If the benefit levels otherwise required under
26 this paragraph exceed the benefit levels provided under
27 the group policy, the conversion policy may offer
28 benefits which are substantially similar to those
29 provided under the group policy in lieu of those
30 otherwise required under this paragraph.
19850H1962B2642 - 1112 -
1 (12) Subject to the provisions and conditions of this
2 title, if the group insurance policy from which conversion is
3 made insures the employee or member for major medical expense
4 insurance, the employee or member shall be entitled to obtain
5 a converted policy providing catastrophic or major medical
6 coverage under a plan meeting the following requirements:
7 (i) A maximum benefit at least equal to either, at
8 the option of the insurer the benefit described in clause
9 (A) or (B):
10 (A) The smaller of the following amounts: the
11 maximum benefit provided under the group policy or a
12 maximum payment of $250,000 per covered person for
13 all covered medical expenses incurred during the
14 covered person's lifetime.
15 (B) The smaller of the following amounts: the
16 maximum benefit provided under the group policy or a
17 maximum payment of $250,000 for each unrelated injury
18 or sickness.
19 (ii) Payment of benefits at the rate of 80% of
20 covered medical expenses which are in excess of the
21 deductible, until 20% of such expenses in a benefit
22 period reaches $1,000, after which benefits will be paid
23 at the rate of 100% during the remainder of the benefit
24 period. Payment of benefits for outpatient treatment of
25 mental illness, if provided in the converted policy, may
26 be at a lesser rate but not less than 50%.
27 (iii) A deductible for each benefit period which, at
28 the option of the insurer, shall be:
29 (A) the sum of the benefits deductible and $100;
30 (B) a cash deductible, not to exceed $1,000;
19850H1962B2642 - 1113 -
1 (C) the greater of the benefits deductible or
2 $500; or
3 (D) the corresponding deductible in the group
4 policy.
5 As used in this subparagraph the term "benefits
6 deductible" means the value of any benefits provided on
7 an expense incurred basis which are provided with respect
8 to covered medical expenses by any other hospital,
9 surgical or medical insurance policy or hospital or
10 medical service subscriber contract or medical practice
11 or other prepayment plan, or any other plan or program
12 whether on an insured or uninsured basis, or in
13 accordance with the requirements of any Federal or state
14 law and, if pursuant to paragraph (13), the converted
15 policy provides both basic hospital or surgical coverage
16 and major medical coverage, the value of such basic
17 benefits. If the maximum benefit is determined by
18 subparagraph (i)(B), the insurer may require that the
19 deductible be satisfied during a period of not less than
20 three months if the deductible is $100 or less, and not
21 less than six months if the deductible exceeds $100.
22 (iv) The benefit period shall be each calendar year
23 when the maximum benefit is determined by subparagraph
24 (i)(A) or 24 months when the maximum benefit is
25 determined by subparagraph (i)(B).
26 (v) For the purposes of this paragraph, the term
27 "covered medical expenses" includes at least, in the case
28 of hospital room and board charges, the lesser of the
29 dollar amount in Plan A and the average semiprivate room
30 and board rate for the hospital in which the individual
19850H1962B2642 - 1114 -
1 is confined and twice that amount for charges in an
2 intensive care unit. Any surgical schedule shall be
3 consistent with those customarily offered by the insurer
4 under group or individual health insurance policies and
5 shall provide at least a $1,200 maximum benefit.
6 (13) The conversion privilege required by this section
7 shall, if the group insurance policy insures the employee or
8 member for both basic hospital or surgical expense insurance
9 and medical expense insurance, make available the plans of
10 benefits set forth in paragraphs (11) and (12). At the option
11 of the insurer, these plans of benefits may be provided under
12 one policy.
13 (14) The insurer may also, in lieu of the plans of
14 benefits set forth in paragraphs (11) and (12), provide a
15 policy of comprehensive medical expense benefits without
16 first dollar coverage. This policy shall conform to the
17 requirements of paragraph (12), except that an insurer
18 electing to provide such a policy shall make available a low
19 deductible option not to exceed $100 a high deductible option
20 between $500, and $1,000 and a third deductible option midway
21 between the high and low deductible options.
22 (15) The insurer may offer alternative plans for group
23 health conversion in addition to those required by this
24 section. The insurer may provide group insurance coverage in
25 lieu of the issuance of a converted individual policy.
26 (16) If coverage would be continued under the group
27 policy on an employee following his retirement prior to the
28 time he is or could be covered by Medicare, he may elect, in
29 lieu of continuation of group insurance, to have the same
30 conversion rights as would apply had his insurance terminated
19850H1962B2642 - 1115 -
1 at retirement by reason of termination of employment or
2 membership.
3 (17) The converted policy may provide for reduction of
4 coverage on any person upon his eligibility for Medicare
5 coverage under the Health Insurance for the Aged Act, Title
6 XVII of the Social Security Act or under any other Federal or
7 state law providing for benefits similar to those provided by
8 the converted policy.
9 (18) The conversion privilege shall also be available:
10 (i) to the surviving spouse, if any, at the death of
11 the employee or member, with respect to the spouse and
12 the children whose coverage under the group policy
13 terminates by reason of the death, otherwise to each
14 surviving child whose coverage under the group policy
15 terminates by reason of the death, or, if the group
16 policy provides for continuation of dependents coverage
17 following the employee's or member's death, at the end of
18 such continuation;
19 (ii) to the spouse of the employee or member upon
20 termination of coverage of the spouse, while the employee
21 or member remains insured under the group policy, by
22 reason of ceasing to be a qualified family member under
23 the group policy, with respect to the spouse and those
24 children whose coverage under the group policy terminates
25 at the same time; or
26 (iii) to a child solely with respect to himself upon
27 termination of his coverage by reason of his ceasing to
28 be a qualified family member under the group policy, if a
29 conversion privilege is not otherwise provided in this
30 paragraph with respect to the termination.
19850H1962B2642 - 1116 -
1 (19) Each certificate holder in the insured group shall
2 be given written notice of the conversion privilege and its
3 duration within 15 days before or after the date of
4 termination of group coverage which notice shall be included
5 in his certificate of coverage. If the notice is given more
6 than 15 days but less than 90 days after the date of
7 termination of group coverage, the time allowed for the
8 exercise of the privilege of conversion shall be extended for
9 15 days after the giving of the notice. If the notice is not
10 given within 90 days after the date of termination of group
11 coverage, the time allowed for the exercise of the conversion
12 privilege shall expire at the end of the 90 days. Written
13 notice by the contract holder given to the certificate holder
14 or mailed to the certificate holder at his last known
15 address, or written notice by the insurer mailed to the
16 certificate holder at the last address furnished to the
17 insurer by the contract holder, shall be deemed full
18 compliance with the notification provisions of this
19 paragraph. A group contract issued by an insurer may provide
20 that notice of the conversion privilege and its duration
21 shall be given by the contract holder to each certificate
22 holder upon termination of his group coverage.
23 (20) If the contract holder is the employer of the
24 certificate holder, the insurer shall also give written
25 notice of termination of the group contract to any
26 organization representing the certificate holder for the
27 purpose of collective bargaining. The employer shall provide
28 to the insurer a written list of such organizations within
29 ten days after the date the policy is issued and thereafter
30 within ten days of the beginning or termination of
19850H1962B2642 - 1117 -
1 representation by the organization of any certificate holder
2 or holders by the organization, including the collective
3 bargaining unit and the group insurance contract to which the
4 request relates. There shall be no liability on the part of
5 any labor organization representing the employees of a
6 contract holder for the purposes of collective bargaining due
7 to any action it takes or fails to take as to the written
8 notice required to be given by the insurer under this
9 paragraph unless done in bad faith by the organization.
10 Compliance or noncompliance with this paragraph shall not
11 affect the rights or duties of the contract holder, insurer
12 or certificate holder as otherwise set forth in this title.
13 (21) A converted policy which is delivered outside this
14 Commonwealth may be on a form which could be delivered in the
15 other jurisdiction as a converted policy had the group policy
16 been issued in that jurisdiction.
17 § 6935. Blanket health and accident insurance.
18 (a) Required provisions.--Every blanket health and accident
19 insurance policy shall contain provisions which, in the opinion
20 of the commissioner, are at least as favorable to the
21 policyholder and the individual insured as the following:
22 (1) A provision that the policy and the application
23 shall constitute the entire contract between the parties;
24 that all statements made by the policyholder shall, in the
25 absence of fraud, be deemed representations and not
26 warranties; and that no such statements shall be used in
27 defense to a claim under the policy, unless it is contained
28 in a written application.
29 (2) A provision that written notice of sickness or of
30 injury must be given to the insurer within 20 days after the
19850H1962B2642 - 1118 -
1 date when the sickness or injury occurred. Failure to give
2 notice within such time shall not invalidate nor reduce any
3 claim, if it is be shown not to have been reasonably possible
4 to give the notice, and that notice was given as soon as was
5 reasonably possible.
6 (3) A provision that the insurer will furnish to the
7 policyholder such forms as are usually furnished by it for
8 filing proof of loss. If such forms are not furnished before
9 the expiration of 15 days after the giving of such notice,
10 the claimant shall be deemed to have complied with the
11 requirements of the policy as to proof of loss upon
12 submitting, within the time fixed in the policy for filing
13 proof of loss, written proof covering the occurrence,
14 character and extent of the loss for which claim is made.
15 (4) A provision that in the case of claim for loss of
16 time for disability, written proof of the loss shall be
17 furnished to the insurer within 30 days after the
18 commencement of the period for which the insurer is liable;
19 that subsequent written proofs of the continuance of the
20 disability shall be furnished to the insurer at such
21 intervals as the insurer may reasonably require; and that in
22 the case of claim for any other loss written proof of loss
23 shall be furnished to the insurer within 90 days after the
24 date of the loss. Failure to furnish proof within the time
25 required shall not invalidate nor reduce any claim if it is
26 shown not to have been reasonably possible to furnish the
27 proof and that the proof was furnished as soon as was
28 reasonably possible.
29 (5) A provision that all benefits payable under the
30 policy, other than benefits for loss of time, will be payable
19850H1962B2642 - 1119 -
1 immediately upon receipt of due written proof of loss; that
2 subject to due proof of loss all accrued benefits payable
3 under the policy for loss of time will be paid not later than
4 at the expiration of each period of 30 days during the
5 continuance of the period for which the insurer is liable;
6 and that any balance remaining unpaid at the termination of
7 the period shall be paid immediately upon receipt of such
8 proof.
9 (6) A provision that the insurer, at its own expense,
10 may examine the person of the insured when and so often as it
11 may reasonably require during the pendency of claim under the
12 policy and may make an autopsy if not prohibited by law.
13 (7) A provision that no action at law or in equity shall
14 be commenced to recover under the policy prior to the
15 expiration of 60 days after written proof of loss has been
16 furnished in accordance with the requirements of the policy
17 and that no such action shall be brought after the expiration
18 of three years after the time written proof of loss is
19 required to be furnished.
20 (b) Application and certificates.--An individual application
21 shall not be required from a person covered under a blanket
22 accident or health policy or contract, nor shall it be necessary
23 for the insurer to furnish each person a certificate.
24 (c) Payment of benefits.--Except as otherwise provided in
25 this section, all benefits under any blanket health and accident
26 policy shall be payable to the person insured or his designated
27 beneficiaries or his estate. If the person insured is a minor or
28 mental incompetent, the benefits may be made payable to his
29 parent, guardian or other person actually supporting him. If the
30 entire cost of the insurance has been borne by the employer, the
19850H1962B2642 - 1120 -
1 benefits may be made payable to the employer. The policy may
2 provide that all or any portion of the indemnities provided by
3 the policy on account of hospital, nursing, medical or surgical
4 services may, at the insurer's option, be paid directly to the
5 hospital or person rendering the services; payment so made shall
6 discharge the insurer's obligation with respect to the amount of
7 insurance so paid. The policy may not require that the service
8 be rendered by a particular hospital or person.
9 § 6936. Companies authorized to write policies.
10 Any insurance company authorized to write health and accident
11 insurance in this Commonwealth may issue group, blanket or
12 franchise health and accident insurance but no such policy may
13 be issued or delivered in this Commonwealth unless a copy of the
14 form thereof has been filed in accordance with section 3515
15 (relating to approval of contracts by commissioner).
16 SUBCHAPTER D
17 MINIMUM STANDARDS FOR INDIVIDUAL POLICIES
18 Sec.
19 6941. Short title of subchapter.
20 6942. Standards for policy provisions.
21 6943. Minimum standards for benefits.
22 6944. Outline of coverage.
23 6945. Preexisting conditions.
24 6946. Procedure regarding regulations.
25 § 6941. Short title of subchapter.
26 This subchapter shall be known and may be cited as the
27 Individual Accident and Health Insurance Minimum Standards Act.
28 § 6942. Standards for policy provisions.
29 (a) Scope of regulation.--The commissioner shall issue
30 regulations to establish specific standards, including standards
19850H1962B2642 - 1121 -
1 of full and fair disclosure, that set forth the manner, content
2 and required disclosures for their sale for individual policies
3 of health and accident insurance and required disclosures for
4 their sale. These regulations shall be in addition to other
5 applicable laws and may cover, but need not be limited to:
6 (1) Terms of renewability.
7 (2) Initial and subsequent conditions of eligibility.
8 (3) Nonduplication of coverage provisions.
9 (4) Coverage of dependents.
10 (5) Preexisting conditions.
11 (6) Termination of insurance.
12 (7) Probationary periods.
13 (8) Limitations.
14 (9) Exceptions.
15 (10) Reductions.
16 (11) Elimination periods.
17 (12) Requirements for replacement.
18 (13) Recurrent conditions.
19 (14) Definitions of terms, including, but not limited
20 to, the following: "hospital," "accident," "sickness,"
21 "injury," "physician," "accidental means," "total
22 disability," partial disability," "nervous disorder,"
23 "guaranteed renewable" and "noncancelable".
24 (15) Prohibited policy provisions not otherwise
25 specifically prohibited by statute which in the opinion of
26 the commissioner are unjust, unfair or unfairly
27 discriminatory to the policyholder, subscriber, any insured
28 or beneficiary.
29 § 6943. Minimum standards for benefits.
30 (a) Scope of regulations.--The commissioner shall issue
19850H1962B2642 - 1122 -
1 regulations to establish minimum standards for benefits under
2 each of the following categories of coverage in policies:
3 (1) Basic hospital expense coverage.
4 (2) Basic medical-surgical expense coverage.
5 (3) Hospital confinement indemnity coverage.
6 (4) Major medical expense coverage.
7 (5) Disability income protection coverage.
8 (6) Accident only coverage.
9 (7) Specified disease or specified accident coverage.
10 (b) Permitted coverage.--Supplemental coverage shall be
11 permitted for all the categories of coverages listed in
12 subsection (a), except for specified disease or specified
13 accident coverage. This section does not preclude the issuance
14 of any policy or contract which combines two or more of the
15 categories of coverage listed in subsection (a).
16 (c) Compliance with regulations.--A policy shall not be
17 delivered or issued for delivery in this Commonwealth which does
18 not meet the prescribed minimum standards for those categories
19 of coverage listed in subsection (a) or supplemental coverage
20 under subsection (b), which are contained within the policy,
21 unless the commissioner finds that the policy will not be
22 unjust, unfair or unfairly discriminatory to the policyholder,
23 subscriber, any insured or beneficiary. Changes to a policy
24 required by regulations promulgated pursuant to this subchapter,
25 including changes to premium rates applicable thereto, shall be
26 permitted by endorsement or rider unless the commissioner
27 determines that the changes substantially alter the policy.
28 (d) Special approval of policies.--Notwithstanding any other
29 provision of this subchapter or regulations promulgated
30 thereunder, any policy submitted for approval which does not
19850H1962B2642 - 1123 -
1 meet the prescribed minimum standards for those categories of
2 coverage listed in subsection (a) or supplemental coverage under
3 subsection (b), which are contained within the policy may be
4 approved if, in the opinion of the commissioner, the policy is
5 not unjust, unfair, or unfairly discriminatory to the
6 policyholder, subscriber or any insured or beneficiary.
7 § 6944. Outline of coverage.
8 (a) Requirement.--In order to provide for full and fair
9 disclosure in the sale of policies except for supplemental
10 policies sold on the debit plan, and except for riders or
11 amendments to policies, a policy shall not be delivered or
12 issued for delivery in this Commonwealth unless an outline of
13 coverage either accompanies the policy or is delivered to the
14 applicant at the time application is made.
15 (b) Regulation of form and contents.--The commissioner shall
16 issue regulations prescribing the format and contents of the
17 outline of coverage. The outline of coverage shall include all
18 of the following, in a form understandable to a person of
19 average intelligence and education:
20 (1) A statement identifying the applicable category or
21 categories of coverage provided by the policy as prescribed
22 in section 6943 (relating to minimum standards for benefits).
23 (2) A description of the principal benefits and coverage
24 provided in the policy.
25 (3) A statement of the exceptions, reductions and
26 limitations contained in the policy.
27 (4) A statement of the renewal provisions including any
28 reservation by the insurer of a right to change premiums.
29 (5) A statement that the outline is a summary of the
30 policy issued or applied for and that the policy should be
19850H1962B2642 - 1124 -
1 consulted to determine the governing contractual provisions.
2 § 6945. Preexisting conditions.
3 Notwithstanding section 6913(c) (relating to mandatory policy
4 provisions), if an insurer elects to use a simplified
5 application form, with or without a question as to the
6 applicant's health at the time of application, but without any
7 questions concerning the insured's health history or medical
8 treatment history, the policy shall cover any loss occurring
9 after 12 months from any preexisting condition not specifically
10 excluded from coverage by terms of the policy. Except as so
11 provided, the policy shall not include any provision that would
12 permit a defense based upon preexisting conditions. Changes to
13 policies required under this section, including changes to
14 premium rates applicable thereto, shall be permitted by
15 endorsement or rider.
16 § 6946. Procedure regarding regulations.
17 All regulations promulgated under this subchapter, including
18 those under section 6943(c) (relating to minimum standards for
19 benefits), shall specify an effective date applicable to
20 policies or benefit riders delivered or issued for delivery in
21 this Commonwealth on or after the effective date, which shall
22 not be less than 365 days after their adoption or promulgation.
23 Public hearings shall be held prior to the promulgation of any
24 substantial regulation under this section or substantial change
25 thereof. The hearing shall be transcribed verbatim, and cross-
26 examination of all witnesses shall be permitted. The order
27 promulgating any such regulation shall contain findings and the
28 reasons for the regulation and copies of the order shall be
29 mailed to those appearing of record at the hearing. This section
30 does not create or permit any right of action at law or equity
19850H1962B2642 - 1125 -
1 not otherwise authorized or permitted under the law.
2 SUBCHAPTER E
3 MEDICARE SUPPLEMENT INSURANCE
4 Sec.
5 6951. Short title of subchapter.
6 6952. Definitions.
7 6953. Definitions in Medicare supplement policies.
8 6954. Prohibited policy provisions.
9 6955. Minimum benefit standards.
10 6956. Loss ratio standards.
11 6957. Required disclosures.
12 6958. Requirements for replacement.
13 6959. Regulations.
14 6960. Applicability of mandated coverages.
15 6961. Applicability of subchapter.
16 § 6951. Short title of subchapter.
17 This subchapter shall be known and may be cited as the
18 Medicare Supplement Insurance Act.
19 § 6952. Definitions.
20 The following words and phrases when used in this subchapter
21 shall have the meanings given to them in this section unless the
22 context clearly indicates otherwise:
23 "Applicant." The proposed certificate holder under a group
24 Medicare supplement policy or subscriber contract.
25 "Certificate." A certificate issued under a group Medicare
26 supplement policy, which policy has been delivered or issued for
27 delivery in this Commonwealth.
28 "Direct response certificate or policy." A certificate or
29 policy issued pursuant to the response to a direct solicitation
30 by means of mail or mass media from an insurer to an individual
19850H1962B2642 - 1126 -
1 eligible for Medicare by reason of age.
2 "Medicare." The Health Insurance for the Aged Act, Title
3 XVIII of the Social Security Act (Public Law 89-97, 42 U.S.C. §
4 1395 et seq.).
5 "Medicare supplement policy." A group policy of accident and
6 health insurance or group subscriber contract of health plan
7 corporations and nonprofit health service plans delivered or
8 issued for delivery in this Commonwealth which is advertised,
9 marketed or designed primarily to supplement coverage for the
10 hospital, medical or surgical expenses of persons eligible for
11 Medicare by reason of age. This term does not include:
12 (1) A policy or contract of one or more employers or
13 labor organizations, or of the trustees of a fund established
14 by one or more employers or labor organizations, or
15 combination thereof, for employees or former employees, or
16 combination thereof, or for members or former members, or
17 combination thereof, of the labor organizations.
18 (2) A policy or contract of any professional, trade or
19 occupational association for its members or former or retired
20 members, or combination thereof, if the association:
21 (i) is composed of individuals all of whom are
22 actively engaged in the same profession, trade or
23 occupation;
24 (ii) has been maintained in good faith for purposes
25 other than obtaining insurance; and
26 (iii) has been in existence for at least two years
27 prior to the date of its initial offering of such policy
28 or plan to its members.
29 § 6953. Definitions in Medicare supplement policies.
30 As used in any Medicare supplement policy issued under this
19850H1962B2642 - 1127 -
1 subchapter:
2 (1) "Accident," "accidental injury" and "accidental
3 means" shall be defined using "result" language and shall not
4 include words which establish an accidental means test or use
5 words such as "external, violent, visible wounds" or similar
6 words of description or characterization. The definition
7 shall not be more restrictive than the following: injury or
8 injuries, for which benefits are provided, means accidental
9 bodily injury sustained by the insured person which is the
10 direct result of an accident, independent of disease or
11 bodily infirmity or any other cause and occurrence while the
12 insurance is in force. The definition may provide that
13 injuries shall not include injuries for which benefits are
14 provided under any workmen's compensation, employers'
15 liability or similar law, or pursuant to Chapter 63 (relating
16 to motor vehicle financial responsibility), unless prohibited
17 by law, or injuries occurring while the insured person is
18 engaged in any activity pertaining to any trade, business,
19 employment or occupation for wage or profit.
20 (2) "Convalescent nursing home," "extended care
21 facility" or "skilled nursing facility" shall be defined in
22 relation to its status, facilities and available services;
23 and:
24 (i) The definition shall not be more restrictive
25 than one requiring that it:
26 (A) be operated pursuant to law;
27 (B) be primarily engaged in providing, in
28 addition to room and board accommodations, skilled
29 nursing care under the supervision of a duly licensed
30 physician;
19850H1962B2642 - 1128 -
1 (C) provide continuous 24-hour a day nursing
2 service by or under the supervision of a registered
3 graduate professional nurse; and
4 (D) maintain a daily medical record of each
5 patient.
6 (ii) The definition may provide that the term does
7 not include:
8 (A) any home, facility or part thereof used
9 primarily for rest;
10 (B) a home or facility for the aged or for the
11 care of drug addicts or alcoholics; or
12 (C) a home or facility primarily used for the
13 care and treatment of mental diseases or disorders or
14 custodial or educational care.
15 (3) "Hospital" may be defined in relation to its status,
16 facilities and available services or to reflect its
17 accreditation by the Joint Commission on Accreditation of
18 Hospitals or the American Osteopathic Association.
19 (i) The definition shall not otherwise be more
20 restrictive than one requiring that the hospital:
21 (A) be an institution operated pursuant to law;
22 (B) be primarily and continuously engaged in
23 providing the medical care and treatment of sick or
24 injured persons on an inpatient basis for which a
25 charge is made; and
26 (C) provide 24-hour nursing service by or under
27 the supervision of registered graduate professional
28 nurses.
29 (ii) The definition may state that the term does not
30 include:
19850H1962B2642 - 1129 -
1 (A) convalescent homes or convalescent, rest or
2 nursing facilities;
3 (B) facilities primarily affording custodial or
4 educational care;
5 (C) facilities for the aged, drug addicts or
6 alcoholics; or
7 (D) any military or veterans hospital or
8 soldiers home or any hospital contracted for or
9 operated by any national government or agency thereof
10 for the treatment of members or ex-members of the
11 armed forces, except for services rendered on an
12 emergency basis where a legal liability exists for
13 charges made to the individual for such services.
14 (4) "Mental or nervous disorders" shall not be defined
15 more restrictively than a definition including neurosis,
16 psychoneurosis, psychopathy, psychosis or mental or emotional
17 disease or disorder of any kind.
18 (5) "Nurses" may be defined so that the description of
19 nurse is restricted to a type of nurse, such as a registered
20 graduate professional nurse, a licensed practical nurse or a
21 licensed vocational nurse. If the words "nurse," "trained
22 nurse" or "registered nurse" are used without specific
23 instruction, then the use of those terms requires the insurer
24 to recognize the services of any individual who qualified
25 under such terminology in accordance with the law regarding
26 licensing of those professionals.
27 (6) "Physician" may be defined by including words such
28 as "duly qualified physician" or "duly licensed physician."
29 The use of such terms requires an insurer to recognize and to
30 accept, to the extent of its obligation under the contract,
19850H1962B2642 - 1130 -
1 all providers of medical care and treatment when such
2 services are within the scope of the provider's licensed
3 authority and are provided under applicable law.
4 (7) "Sickness" shall not be defined to be more
5 restrictive than the following: sickness means sickness or
6 disease of an insured person which is diagnosed or treated
7 after the effective date of insurance and while the insurance
8 is in force. The definition may exclude sickness or disease
9 for which benefits are provided under any workmen's
10 compensation, occupational disease, employers' liability or
11 similar law.
12 § 6954. Prohibited policy provisions.
13 A Medicare supplement policy shall not limit or exclude
14 coverage by type of illness, accident, treatment or medical
15 condition except to the extent they are excluded or limited by
16 Medicare. Such policies may exclude coverage for any expense to
17 the extent of any benefit available to the insured under
18 Medicare.
19 § 6955. Minimum benefit standards.
20 A policy shall not be filed with the commissioner as a
21 Medicare supplement policy unless the policy meets or exceeds,
22 either in a single policy or, in the case of health plan
23 corporations and nonprofit health service plans, in one or more
24 policies issued in conjunction with one another, the
25 requirements of the NAIC Model Regulation to Implement the
26 Individual Accident and Sickness Insurance Minimum Standards
27 Act, as adopted by the National Association of Insurance
28 Commissioners on June 6, 1979, as it applies to Medicare
29 supplement policies. At least the following provisions and
30 benefits shall be provided in the policy:
19850H1962B2642 - 1131 -
1 (1) A Medicare supplement policy may not exclude losses
2 incurred more than six months from the effective date of
3 coverage for a preexisting condition. The policy may not
4 define a preexisting condition more restrictively than a
5 condition for which medical advice was given or treatment was
6 recommended by or received from a physician within six months
7 prior to the effective date of coverage.
8 (2) The term "Medicare benefit period" shall mean the
9 unit of time used in the Medicare program to measure use of
10 services and availability of benefits under Part A, medical
11 hospital insurance.
12 (3) The term "Medicare eligible expenses" shall mean
13 health care expenses of the kinds covered by Medicare to the
14 extent recognized as reasonable by Medicare. Payment of
15 benefits by insurers for Medicare eligible expenses may be
16 conditioned upon the same or less restrictive payment
17 conditions, including determinations of medical necessity as
18 are applicable to Medicare claims.
19 (4) Coverage shall not indemnify against losses
20 resulting from sickness on a different basis than losses
21 resulting from accidents. Coverage shall provide that
22 benefits designed to cover cost-sharing amounts under
23 Medicare shall be changed automatically to coincide with any
24 changes in the applicable Medicare deductible amount and
25 copayment percentage factors; premiums may be changed to
26 correspond with such changes.
27 (5) The Medicare supplement policy shall include all of
28 the following:
29 (i) Coverage of Part A Medicare eligible expenses
30 for hospitalization to the extent not covered by Medicare
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1 from the 61st day through the 90th day in any Medicare
2 benefit period.
3 (ii) Coverage of Part A Medicare eligible expenses
4 incurred as daily hospital charges during use of
5 Medicare's lifetime hospital inpatient reserve days.
6 (iii) Upon exhaustion of all Medicare hospital
7 inpatient coverage including the lifetime reserve days,
8 coverage of 90% of all Medicare Part A eligible expenses
9 for hospitalization not covered by Medicare subject to a
10 lifetime maximum benefit of an additional 365 days.
11 (iv) Coverage of 20% of the amount of Medicare
12 eligible expenses under Part B regardless of hospital
13 confinement, subject to a maximum calendar year out-of-
14 pocket deductible of $200 of such expenses and to a
15 maximum benefit of at least $5,000 per calendar year.
16 (6) Insurers which make available in this Commonwealth
17 any Medicare supplement policy shall also simultaneously
18 offer to the prospective insureds an additional benefit plan
19 Medicare supplement coverage which both conforms to the terms
20 and conditions of section 6954 (relating to prohibited policy
21 provisions) and which also provides at least the following
22 coverages:
23 (i) The initial Part A deductible.
24 (ii) Skilled nursing home charges incurred in
25 addition to those covered by Medicare.
26 (iii) Coverage of 20% of eligible expenses incurred
27 under Part B of Medicare in excess of the deductible
28 amount applied to such expenses by Medicare.
29 This offer shall be given prominence in any solicitation of
30 the Medicare supplement policy benefits described in this
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1 section and shall provide the prospective insured the
2 opportunity to simultaneously enroll or apply for the
3 additional benefit plan Medicare supplement coverage. The
4 description of the additional benefit plan Medicare
5 supplement coverage shall include a statement of the
6 coverages, the premium charges and any additional applicable
7 exclusions and limitations permitted for the additional
8 benefit plan Medicare supplement coverage. The additional
9 benefit plan coverage, if elected by the prospective insured
10 person, shall take effect no later than 15 days following the
11 effective date which applies to the rest of the Medicare
12 supplement coverage.
13 § 6956. Loss ratio standards.
14 The terms and premiums of Medicare supplement policies shall
15 be prepared so as to return to policyholders in the form of
16 aggregate benefits under the policy, as estimated for the entire
17 period for which rates are computed to provide coverage, on the
18 basis of incurred claims experience and earned premiums for such
19 period, and in accordance with accepted actuarial principles and
20 practices:
21 (1) at least 75% of the aggregate amount of premiums
22 collected; or
23 (2) in the case of direct certificates issued as a
24 result of solicitations of individuals through the mail or
25 mass media advertising, including both print and broadcast
26 advertising, at least 60% of the aggregate amount of premiums
27 collected.
28 § 6957. Required disclosures.
29 (a) Renewal provisions.--Each Medicare supplement policy
30 shall include a renewal, continuation or nonrenewal provision.
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1 The terms of this provision shall be consistent with the type of
2 contract to be issued. The provision shall be appropriately
3 captioned, shall appear on the first page of the certificate and
4 shall clearly state the duration, where limited, of renewability
5 and the duration of the term of coverage for which the policy is
6 issued and for which it may be renewed.
7 (b) Standards for payment.--A Medicare supplement policy
8 which provides for the payment of benefits based on standards
9 described as "usual and customary," "reasonable and customary"
10 or words of similar import shall include a definition of the
11 terms and an explanation of the terms in its accompanying
12 outline of coverage.
13 (c) Preexisting condition provisions.--If a Medicare
14 supplement policy contains any limitations with respect to
15 preexisting conditions, these limitations shall appear as a
16 separate paragraph of the certificate and be labeled as
17 "Preexisting Condition Limitations."
18 (d) Right of return.--Certificates, other than those issued
19 pursuant to direct response solicitation, shall have a notice
20 prominently printed on the first page of the certificate or
21 attached thereto stating in substance that the certificate
22 holder shall have the right to return the certificate within ten
23 days of its delivery and to have the premium refunded if, after
24 examination of the certificate, the insured person is not
25 satisfied for any reason. Direct response Medicare supplement
26 certificates shall have a notice prominently printed on the
27 first page, or attached thereto, stating in substance that the
28 certificate holder shall have the right to return the
29 certificate within 30 days of its delivery and to have the
30 premium refunded if after examination the insured person is not
19850H1962B2642 - 1135 -
1 satisfied for any reason.
2 (e) Buyer's guide.--Insurers issuing accident and health
3 certificates under group policies delivered or issued for
4 delivery in this Commonwealth which provide hospital or medical
5 expense coverage on an expense incurred or indemnity basis,
6 other than incidentally, to a person eligible for Medicare by
7 reason of age, shall provide to the certificate holder a
8 Medicare supplement buyer's guide in the form consistent with
9 the then current edition of the model jointly developed by the
10 National Association of Insurance Commissioners and the Health
11 Care Financing Administration of the United States Department of
12 Health and Human Services. Delivery of the buyer's guide shall
13 be made whether or not the group policy qualifies as a Medicare
14 supplement policy. Except in the case of direct response
15 insurers, delivery of the buyer's guide shall be made at the
16 time of application, and acknowledgment of receipt of
17 certification of delivery of the buyer's guide shall be provided
18 to the insurer. Direct response insurers issuing Medicare
19 supplement policies shall deliver the buyer's guide upon
20 request, but not later than at the time the certificate is
21 delivered.
22 (f) Description of coverage.--The terms "Medicare
23 supplement," "medigap" and words of similar import shall not be
24 used unless the policy is issued in compliance with section 6955
25 (relating to minimum benefit standards).
26 (g) Outline of coverage.--Insurers issuing Medicare
27 supplement policies shall deliver an outline of coverage to the
28 applicant at the time application is made. Except in the case of
29 a direct response policy, an acknowledgment of receipt or
30 certification of delivery of the outline of coverage shall be
19850H1962B2642 - 1136 -
1 provided to the insurer. If an outline of coverage was delivered
2 at the time of application and the certificate is issued on a
3 basis which would require revision of the outline, a substitute
4 outline of coverage properly describing the certificate shall
5 accompany the certificate when it is delivered and shall contain
6 the following statement, in no less than 12-point type,
7 immediately above the company name:
8 "NOTICE: Read this outline of coverage carefully. It is
9 not identical to the outline of coverage provided upon
10 application and the coverage originally applied for has
11 not been issued."
12 The outline of coverage shall be in a form consistent with the
13 then current model adopted by the National Association of
14 Insurance Commissioners and amended to reflect changes in the
15 Medicare program.
16 § 6958. Requirements for replacement.
17 (a) Question to applicant.--Application or enrollment forms
18 shall include a question designed to elicit information as to
19 whether a certificate to be issued under a Medicare supplement
20 policy is intended to replace any other health and accident
21 insurance presently in force. A supplementary application or
22 other form to be signed by the applicant containing such a
23 question may be used.
24 (b) Notice.--Upon determining that a sale will involve
25 replacement, an insurer, other than a direct response insurer,
26 or its agent, shall furnish the applicant, prior to issuance or
27 delivery of the certificate, a notice designed to inform the
28 applicant of the essential differences in coverage on a form
29 consistent with the then current model notification form adopted
30 by the National Association of Insurance Commissioners. One copy
19850H1962B2642 - 1137 -
1 of the notice shall be retained by the applicant, and an
2 additional copy signed by the applicant shall be retained by the
3 insurer. A direct response insurer shall deliver the notice to
4 the applicant upon issuance of the certificate.
5 § 6959. Regulations.
6 (a) General rule.--Public hearings shall be held prior to
7 the promulgating of any regulations promulgated under this
8 subchapter unless the regulation is insubstantial. The order
9 promulgating the regulation shall contain findings and reasons
10 for the regulation. This section does not create or permit any
11 right or action at law or inequity not otherwise authorized by
12 law.
13 (b) Modifications required by Medicare statute.--The
14 commissioner may promulgate regulations changing the
15 requirements of this subchapter, other than sections 6960
16 (relating to applicability of mandated coverages) and 6961
17 (relating to applicability of subchapter), to the extent
18 necessary to comply with changes made by Congress as to the
19 requirements contained in section 1882 of the Social Security
20 Act (Public Law 96-26, 42 U.S.C. § 1395ss), as these
21 requirements were in effect on July 1, 1983. These regulations
22 shall take effect within 60 days after their promulgation.
23 § 6960. Applicability of mandated coverages.
24 Coverage which is required to be included in any group or
25 blanket accident and health policy by any statute enacted on or
26 after July 1, 1983, shall not be required to be included in any
27 Medicare supplement policy, unless inclusion thereof is
28 specifically required by the statute.
29 § 6961. Applicability of subchapter.
30 This subchapter shall apply to all group health and accident
19850H1962B2642 - 1138 -
1 policies issued or renewed.
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