Pennsylvania Surplus Lines Association

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Surplus Lines Law

Article 16 of the Insurance Company Law of 1921, May 17,
P.L. 682, as amended and supplemented

PSLA claims no copyright in the text of these statutory materials. Text has been obtained from sources believed to be reliable and current as of March 27, 2003. To ensure compliance with the statute, the reader is advised to consult Purdon's Pennsylvania Statutes, Title 40, Chapter 2, Article XVI, published by West Publishing Company, 610 Operman, St. Paul, MN 55123.

Section 1601. Purpose

Section 1602. Definitions

Section 1603. Acting for or aiding nonadmitted insurers

Section 1604. Placement of surplus lines insurance

Section 1605. Requirements for eligible surplus lines insurers

Section 1606. Other nonadmitted insurers

Section 1607. Withdrawal of eligibility from a surplus lines insurer

Section 1608. Surplus lines licensee’s duty to notify insured

Section 1609. Declarations

Section 1610. Exempt risks

Section 1611. Surplus lines advisory organizations

Section 1612. Evidence of insurance

Section 1613. Valid surplus lines insurance

Section 1614. Effect of payment to surplus lines licensee

Section 1615. Licensing of surplus lines licensee

Section 1616. Surplus lines licensees may accept business from brokers

Section 1617. Compliance with law by two or more surplus lines licensees

Section 1618. Surplus lines licensee with binding authority

Section 1619. Records of surplus lines licensee

Section 1620. Monthly reports

Section 1621. Surplus lines tax

Section 1622. Tax on independently procured insurance

Section 1623. Suspension, revocation or nonrenewal of surplus lines licensee’s license

Section 1624. Service of process in actions against surplus lines insurer

Section 1625. Penalties

Section 1601. Purpose

Purpose.The purpose of this article is to protect the public interest by:
(1) Protecting persons seeking insurance in this Commonwealth.
(2) Permitting surplus lines insurance to be placed with reputable and financially sound nonadmitted insurers and exported from this Commonwealth pursuant to this article.
(3) Establishing a system of regulation which will permit orderly access to surplus lines insurance in this Commonwealth and encouraging insurers to make new and innovative types of insurance available to consumers in this Commonwealth.
(4) Protecting revenues of this Commonwealth.
(1601 added Dec. 18, 1992, P.L.1519, No.178)

Section 1602. Definitions

Definitions.As used in this article the following words and phrases shall have the meanings given to them in this section:
"Admitted insurer." An insurer licensed to do an insurance business in this Commonwealth.
"Capital." The term, as used in the financial requirements of section 1605, means funds paid for stock or other evidence of ownership.
"Commissioner." The Insurance Commissioner of the Commonwealth.
"Department." The Insurance Department of the Commonwealth.
"Eligible surplus lines insurer." A nonadmitted insurer with which a surplus lines licensee may place surplus lines insurance under section 1604.
"Export." To place surplus lines insurance with either a nonadmitted insurer or an eligible surplus lines insurer in accordance with this article.
"Independently procured insurance." Any insurance which a resident of this Commonwealth directly negotiates with and purchases, continues or renews from a nonadmitted insurer without securing the services of an insurance agent, broker or surplus lines licensee, whether the agent or broker holds a resident or nonresident license issued by the department.
"Kind of insurance." One of the types of insurance required to be reported in the annual statement which must be filed with the department by admitted insurers.
"Nonadmitted insurer." An insurer not authorized and not licensed to do an insurance business in this Commonwealth. The term includes insurance exchanges as authorized under the laws of various states.
"Producing broker." The broker dealing directly with the party seeking insurance.
"Purchasing group." An entity formed to purchase liability insurance under the Risk Retention Amendments of 1986 (Public Law 99-563, 100 Stat. 3170).
"Risk retention group." An insurer organized to do business under the Risk Retention Amendments of 1986 (Public Law 99-563, 100 Stat. 3170).
"Surplus." The term, as used in the financial requirements of section 1605, means funds over and above liabilities and capital of the company for the protection of its policyholders.
"Surplus lines insurance." Any insurance of risks resident, located or to be performed in this Commonwealth, permitted to be placed through a surplus lines licensee with a nonadmitted insurer eligible to accept such insurance, other than reinsurance, wet marine and transportation insurance, independently procured insurance, life and health insurance and annuities and coverage obtained from risk retention groups under the Risk Retention Amendments of 1986 (Public Law 99-563, 100 Stat. 3170).
"Surplus lines licensee." An individual, partnership or corporation licensed under section 1615 to place surplus lines insurance with nonadmitted insurers eligible to accept such insurance.
"Wet marine and transportation insurance." Any of the following:
(1) Insurance upon vessels, crafts or hulls and of interests therein or with relation thereto.
(2) Insurance of marine builder's risks, marine war risks and contracts of marine protection and indemnity insurance.
(3) Insurance of freights and disbursements pertaining to a subject of insurance coming within this definition.
(4) Insurance of personal property and interest therein, in the course of exportation from or importation into any country, or in the course of transportation coastwise or on inland waters, including transportation by land, water or air from point of origin to final destination, in connection with any and all risks or perils of navigation, transit or transportation, and while being prepared for and while awaiting shipment, and during any delays, transshipment or reshipment. Insurance of personal property and interests therein shall not be considered wet marine and transportation insurance if:
(i) the property has been transported solely by land;
(ii) the property has reached its final destination as specified in the bill of lading or other shipping document; or
(iii) the insured no longer has an insurable interest in the property.
(Def. amended July 10, 2002, P.L.749, No.110)
(1602 added Dec. 18, 1992, P.L.1519, No.178)

Section 1603. Acting for or aiding nonadmitted insurers

Acting for or Aiding Nonadmitted Insurers.(a) No person in this Commonwealth shall directly or indirectly act as agent for, or otherwise represent or aid on behalf of another, any nonadmitted insurer in the solicitation, negotiation, procurement or effectuation of insurance, or renewals thereof, or forwarding of applications, or delivery of policies or contracts or inspection of risks, or fixing of rates, or investigation or adjustment of claims or losses, or collection or forwarding of premiums, or in any other manner represent or assist such insurer in the transaction of insurance.
(b) If the nonadmitted insurer is not an eligible surplus lines insurer and fails to pay a claim or loss within the provisions of the insurance contract, a person who assisted or in any manner aided, directly or indirectly, in the procurement of the insurance contract shall be liable to the insured for the full amount payable under the provisions of the insurance contract.
(c) This section does not apply to any of the following:
(1) Surplus lines insurance if it is effected and written pursuant to this article.
(2) Insurance effected with a nonadmitted insurer pursuant to sections 1606 and 1610.
(3) Transactions for which a certificate of authority to do business is not required of an insurer under the insurance laws of this Commonwealth.
(4) Reinsurance.
(5) Wet marine and transportation insurance.
(6) Transactions subsequent to issuance of a policy not covering domestic risks at time of issuance and lawfully solicited, written or delivered outside of this Commonwealth.
(7) Transactions involving risk retention groups chartered and licensed outside of this Commonwealth.
(1603 added Dec. 18, 1992, P.L.1519, No.178)

Section 1604. Placement of surplus lines insurance

Placement of Surplus Lines Insurance.Insurance may be procured through a surplus lines licensee from nonadmitted insurers if the following requirements are met:
(1) Each insurer is an eligible surplus lines insurer.
(2) The placement satisfies the criteria set forth in at least one of the following subparagraphs:
(i) The full amount or kind of insurance cannot be obtained from admitted insurers. Such full amount or kind of insurance or any portion thereof may be procured from eligible surplus lines insurers, provided that a diligent search is made among the admitted insurers who are writing, in this Commonwealth, coverage comparable to the coverage being sought.
(ii) The full amount or kind of insurance cannot be obtained from any admitted insurers because coverage comparable to the coverage being sought generally is not available in the authorized market.
(iii) The kind of insurance sought to be obtained from admitted insurers requires a unique form of coverage not available in the admitted market.
(3) With respect to personal lines policies or contract forms, the policy or contract form used by the insurer does not differ materially from policies or contracts customarily used by admitted insurers for the kind of insurance involved. Personal lines coverage may be placed in an eligible surplus lines insurer using a unique form or policy designed for the kind of insurance only if a copy of such form is first filed with the department by the surplus lines licensee desiring to use it. The form shall be deemed approved by the commissioner unless, within ten (10) days after receipt of the same, the commissioner shall find that the use of such form will be contrary to law or public policy.
(4) All other requirements of this article are met.
(1604 amended July 10, 2002, P.L.749, No.110)

Section 1605. Requirements for eligible surplus lines insurers

Requirements for Eligible Surplus Lines Insurers.(a) No surplus lines licensee shall place any coverage with a nonadmitted insurer unless, at the time of placement, such nonadmitted insurer:
(1) Is of good repute and financial integrity.
(2) Qualifies under any of the following subparagraphs:
(i) Has policyholder surplus equal to or greater than two times the minimum capital and surplus required to be fully licensed in this Commonwealth. Two (2) years from the effective date of this article is granted to allow those nonadmitted insurers which are eligible surplus lines insurers on the effective date of this article to achieve this capital and surplus requirement. If an alien insurer, as defined by the act of December 10, 1974 (P.L.804, No.266), referred to as the Alien Insurer Domestication Law, it shall maintain in the United States an irrevocable trust fund in either a national bank or a member of the Federal Reserve System, in an amount not less than that currently required by the National Association of Insurance Commissioners' International Insurers Department or its successor for the protection of all of its policyholders in the United States, and such trust fund consists of cash, securities, letters of credit or investments of substantially the same character and quality as those which are eligible investments for admitted insurers authorized to write like kinds of insurance in this Commonwealth. Such trust fund will be in addition to the capital and surplus required in this subparagraph and shall have an expiration date which at no time shall be less than five (5) years.
(ii) Is any Lloyd's or other similar group of insurers which includes unincorporated individual insurers that maintains a trust fund of not less than fifty million ($50,000,000) dollars as security to the full amount thereof for all policyholders and creditors in the United States of each member of the group. Such trust funds shall likewise comply with the terms and conditions established in subparagraph (i) for alien insurers.
(iii) Is an insurance exchange created by the laws of individual states that maintains capital and surplus or the substantial equivalent thereof of not less than fifteen million ($15,000,000) dollars in the aggregate. For insurance exchanges which maintain funds for the protection of all insurance exchange policyholders, each individual syndicate shall maintain minimum capital and surplus or the substantial equivalent thereof of not less than one million five hundred thousand ($1,500,000) dollars. In the event the insurance exchange does not maintain funds for the protection of all insurance exchange policyholders, each individual syndicate shall meet the minimum capital and surplus requirements of subparagraph (i).
(3) Has provided to the department a copy of its current annual financial statement certified by such insurer, such statement to be provided no more than thirty (30) days after the date required for filing an annual financial statement in its domiciliary jurisdiction and which is either:
(i) certified by the regulatory authority in the domicile of the insurer; or
(ii) certified by an accounting or auditing firm licensed in the jurisdiction of the insurer's domicile.
In the case of an insurance exchange, the statement may be an aggregate statement of all underwriting syndicates operating during the period reported.
(b) In addition to meeting the requirements in subsection (a), a nonadmitted insurer shall be an eligible surplus lines insurer if it appears on the most recent list of eligible surplus lines insurers published by the department from time to time but at least semiannually. Nothing in this section shall require the department to place or maintain the name of any nonadmitted insurer on the list of eligible surplus lines insurers.
(1605 amended July 10, 2002, P.L.749, No.110)

Section 1606. Other nonadmitted insurers

Other Nonadmitted Insurers.Only that portion, not to exceed twenty-five per centum (25%), of any risk eligible for export for which the full amount of coverage is not procurable from either admitted insurers or eligible surplus lines insurers may be placed with any other nonadmitted insurer which does not appear on the list of eligible surplus lines insurers published by the department pursuant to section 1605(b) but nonetheless meets the requirements set forth in section 1605(a) and any regulations of the department. The surplus lines licensee seeking to provide coverage through a nonadmitted insurer which is not an eligible surplus lines insurer shall make a filing specifying the amount and percentage of each risk along with a full explanation of why the risk could not be placed with admitted or eligible surplus lines insurers and naming the nonadmitted insurer with which placement is intended. At the time of presenting a quotation to the insured, the surplus lines licensee shall present to the insured or to the producing broker written notice that a portion of the insurance will be placed with such nonadmitted insurer.
(1606 added Dec. 18, 1992, P.L.1519, No.178)

Section 1607. Withdrawal of eligibility from a surplus lines insurer

Withdrawal of Eligibility from a Surplus Lines Insurer.If at any time the department has reason to believe that an eligible surplus lines insurer:
(1) is in unsound financial condition;
(2) is no longer eligible under section 1605;
(3) has wilfully violated the laws of this Commonwealth; or
(4) does not make reasonably prompt payment of just losses and claims in this Commonwealth or elsewhere;
the department may declare it ineligible. The department shall promptly mail notice of all such declarations to each surplus lines licensee and, in the event the department's action is based upon paragraph (4), the notice shall be issued at least thirty (30) days prior to the effective date of the withdrawal of eligibility.
(1607 added Dec. 18, 1992, P.L.1519, No.178)

Section 1608. Surplus lines licensee's duty to notify insured
Surplus Lines Licensee's Duty to Notify Insured.At the time of presenting a quotation to the insured, the surplus lines licensee shall present to the insured or to the producing broker written notice that the insurance or a portion thereof involves placement with nonadmitted insurers. The licensee shall, either directly or through the producing broker, give notice to the insured that:
(1) the insurer with which the licensee places the insurance is not licensed by the Pennsylvania Insurance Department and is subject to its limited regulation; and
(2) in the event of the insolvency of an eligible surplus lines insurer, losses will not be paid by the Pennsylvania Property and Casualty Insurance Guaranty Association.
(1608 amended July 10, 2002, P.L.749, No.110)

Section 1609. Declarations

Declarations.(a) In the case of each placement of insurance in accordance with this article:
(1) Within thirty (30) days after the surplus lines licensee has placed insurance with an eligible surplus lines insurer, the producing broker must execute and forward to the surplus lines licensee a written statement, in a form prescribed by the department, declaring that:
(i) A diligent effort to procure the desired coverage from admitted insurers was made.
(ii) The insured was expressly advised in writing prior to placement of the insurance that:
(A) the insurer with whom the insurance is to be placed is not admitted to transact business in this Commonwealth and is subject to limited regulation by the department; and
(B) in the event of the insolvency of the insurer, losses will not be paid by the Pennsylvania Property and Casualty Insurance Guaranty Association.
This written declaration shall be open to public inspection.
(2) Within forty-five (45) days after insurance has been placed in an eligible surplus lines insurer, the surplus lines licensee shall file with the department a written declaration of his lack of knowledge of how the coverage could have been procured from admitted insurers. The surplus lines licensee shall simultaneously file the written declaration of the producing broker, as set forth in paragraph (1).
(3) In a particular transaction where the producing broker and surplus lines licensee are one in the same entity, he shall execute both declarations.

(b) Subsection (a) shall not apply to any insurance which has been placed continuously with an eligible surplus lines insurer for a period of at least three (3) consecutive years immediately preceding the current placement. However, within forty-five (45) days after insurance has been placed with an eligible surplus lines insurer, the surplus lines licensee shall file with the department his written declaration on a form prescribed by the department.
(1609 amended July 10, 2002, P.L.749, No.110)

Section 1610. Exempt risks

(a) The diligent search requirements of section 1604(2), the reporting requirements of section 1609(a) and the twenty-five per centum (25%) limitation of section 1606 are not applicable to placements of insurance with nonadmitted insurers for risks of an insured which meets at least three of the following requirements:
(1) The insured employs a full-time risk manager or contracts for services from a qualified risk management service.
(2) The insured has gross sales in excess of one hundred million ($100,000,000) dollars.
(3) The insured regularly employs in excess of two hundred fifty (250) full-time employes.
(4) The insured has assets in excess of one hundred million ($100,000,000) dollars.
(5) The insured has insurance premiums for property and casualty insurance, excluding employe benefits, in excess of two hundred fifty thousand ($250,000) dollars.
(6) The insured is seeking insurance for risks resident, located or to be performed in one or more states other than this Commonwealth and the portion of the total risk ascribable to states other than this Commonwealth exceeds fifty per centum (50%).

(b) (1) The diligent search requirement of section 1604(2) and the reporting requirements of section 1609(a) are not applicable to placements of insurance with eligible surplus lines insurers for:
(i) Risks of members of a purchasing group established under the Risk Retention Amendments of 1986 (Public Law 99-563, 100 Stat. 3170) if all of the insured members of the purchasing group are covered under its group policy or if the members are additional named insureds under the group's policy.
(ii) Risks of members of a risk retention group established under the Risk Retention Amendments of 1986.
(2) Within forty-five (45) days after insurance has been placed with an eligible surplus lines insurer for members of a purchasing group or risk retention groups by a surplus lines licensee, the licensee shall file with the department his written declaration, reporting the transaction on a form prescribed by the department.
(1610 added Dec. 18, 1992, P.L.1519, No.178)

Section 1611. Surplus lines advisory organizations
Surplus Lines Advisory Organizations.(a) A surplus lines advisory organization of surplus lines licensees may be formed to:
(1) Facilitate and encourage compliance by its members with the laws of this Commonwealth and the rules and regulations of the department relative to surplus lines insurance.
(2) Provide means for the examination, which shall remain confidential, of all surplus lines coverages written by its members to determine whether such coverages comply with such laws and regulations.
(3) Communicate with organizations of admitted insurers with respect to the proper use of the surplus lines market.
(4) Receive and disseminate to its members information relative to surplus lines insurance.
(b) The functions of the organization shall in no way supplant or delegate current regulatory authority of the department to administer the provisions of this article.
(c) Each such advisory organization shall file with the department for approval:
(1) A copy of its constitution, its articles of agreement or association or its certificate of incorporation.
(2) A copy of its bylaws, rules and regulations governing its activities.
(3) A current list of its members.
(4) The name and address of a resident of this Commonwealth upon whom notices or orders of the department or processes issued at its direction may be served.
(5) An agreement that the department may examine such advisory organization in accordance with the provisions of this section.
(d) The department shall, at least once every four (4) years, make or cause to be made an examination of each such advisory organization. The reasonable cost of any such examination shall be paid by the advisory organization upon presentation to it by the department of a detailed account of each cost. The officers, managers, agents and employes of such advisory organization may be examined at any time, under oath, and shall exhibit all books, records, accounts, documents or agreements governing its method of operation. The department shall furnish two copies of the examination report to the advisory organization examined and shall notify such organization that it may, within twenty (20) days thereof, request a hearing on the report or on any facts or recommendations therein. If the department finds such advisory organization or any member thereof to be in violation of this article, it may issue a cease and desist order requiring the discontinuance of such violation and may impose any other penalties as set forth in this article.
(e) The department may contract with a surplus lines advisory organization to render advice and assistance in carrying out the purposes of this article. The services performed by the advisory organization pursuant to such contract may be funded by a stamping fee assessed on each surplus lines policyholder whose policy is submitted to the advisory organization. The stamping fee shall be established by the board of governors of the advisory organization, from time to time, and shall be subject to approval by the department.
(f) The advisory organization may submit reports and make recommendations to the department regarding the financial condition of any eligible surplus lines insurer. These reports and recommendations shall not be considered to be public information or subject to any Federal or State freedom of information law. There shall be no liability on the part of nor shall any cause of action of any nature be sustained against eligible surplus lines insurers, the advisory organization or its members, agents, employes or directors or the department or authorized representatives of the department for statements and any reports or recommendations made by them in good faith under this section.
(g) By order of the department, a surplus lines licensee may be compelled to join an advisory organization as a condition of continued licensure under this article.
(1611 added Dec. 18, 1992, P.L.1519, No.178)

Section 1612. Evidence of insurance

Evidence of Insurance.(a) Upon placing surplus lines insurance, the surplus lines licensee shall deliver to the insured or the producing broker the contract of insurance. If the contract of insurance is not immediately available, a cover note, binder or other evidence of insurance shall be delivered by the surplus lines licensee to the insured or the producing broker and shall, at a minimum, show the description and location of the subject of insurance, coverages, including any material limitations other than those in standard forms, the premium and rate charged and taxes to be collected from the insured, the name and address of the insured and the eligible surplus lines insurer and other nonadmitted insurer involved under section 1606 and proportion of the risk assumed by each, and the name of the surplus lines licensee.
(b) No surplus lines licensee shall bind or provide evidence of insurance unless he has authority from the eligible surplus lines insurer or other nonadmitted insurer to bind the risk or has received information from the insurer in the regular course of business that it has assumed the risk.
(c) If, after delivery of any such evidence of insurance, there is any change in the identity of the eligible surplus lines insurer, or the proportion of the risk assumed by any nonadmitted insurer, or any other material change in coverage as stated in the surplus lines licensee's original evidence of insurance, or any other material change as to the insurance coverage so evidenced, the surplus lines licensee shall promptly issue and deliver to the insured or to the original producing broker an appropriate substitute for or endorsement of the original document accurately showing the current status of the coverage and the insurer responsible thereunder.
(d) Every evidence of insurance negotiated, placed or procured under the provisions of this article issued by the surplus lines licensee shall bear the name of the licensee and the following legend in 10-point type: "The insurer which has issued this insurance is not licensed by the Pennsylvania Insurance Department and is subject to limited regulation. This insurance is NOT covered by the Pennsylvania Insurance Guaranty Association."
(1612 added Dec. 18, 1992, P.L.1519, No.178)

Section 1613. Valid surplus lines insurance

Valid Surplus Lines Insurance.Contracts of insurance procured under this article shall be valid and enforceable as to all parties. Nothing in this article shall be interpreted to prevent an insured from enforcing his rights under the terms and conditions of a contract of insurance entered into in violation of this article.
(1613 added Dec. 18, 1992, P.L.1519, No.178)

Section 1614. Effect of payment to surplus lines licensee
Effect of Payment to Surplus Lines Licensee.A payment of premium to the producing broker or to a surplus lines licensee acting for a person other than himself in negotiating, continuing or reviewing any contract of insurance under this article shall be deemed to be payment to the insurer, whatever conditions or stipulations may be inserted in the contract notwithstanding.
(1614 added Dec. 18, 1992, P.L.1519, No.178)

Section 1615. Licensing of surplus lines licensee
Licensing of Surplus Lines Licensee.(a) No agent or broker licensed by the department shall transact surplus lines insurance with any nonadmitted insurer unless such agent or broker possesses a valid surplus lines agent's license issued by the department.
(b) The department shall issue a surplus lines agent's license to any resident or nonresident of this Commonwealth who is a qualified holder of a current property and casualty broker's license, but only when the broker has complied with the following:
(1) Remitted the license fee to the department.
(2) Submitted a properly completed license application on a form supplied by the department.
(3) Passed a qualifying examination approved by the department, except that all holders of a license prior to the effective date of this article shall be deemed to have passed such an examination.
(c) Corporations and partnerships shall be eligible to be resident or nonresident surplus lines licensees, upon the following conditions:
(1) The corporation or partnership licensee shall list all employes, including at least one active officer or partner, who have satisfied the requirements of this article to become surplus lines licensees.
(2) Only those employes holding a certificate of eligibility may transact surplus lines insurance.
(d) Each surplus lines license shall expire on the last day of February of each year and shall be renewed before March 1 of each year upon payment of the annual fee, in compliance with other provisions of this section. Any surplus lines licensee who fails to apply for renewal of a license before expiration of the current license shall pay a penalty of two times the license fee and be subject to other penalties as provided by law before his license will be renewed.
(1615 amended July 10, 2002, P.L.749, No.110)

Section 1616. Surplus lines licensees may accept business from brokers

Surplus Lines Licensees May Accept Business from Brokers.A surplus lines licensee may originate surplus lines insurance or accept such insurance from any broker duly licensed as to the kind or kinds of insurance involved, and the surplus lines licensee may compensate such broker therefor.
(1616 added Dec. 18, 1992, P.L.1519, No.178)

Section 1617. Compliance with law by two or more surplus lines licensees

Compliance with Law by Two or More Surplus Lines Licensees.(a) When two or more surplus lines licensees are involved in a transaction subject to this article, the surplus lines licensee dealing directly with or closest to the insured is responsible for compliance with sections 1604, 1608, 1609, 1612, 1619 and 1621.
(b) This provision shall not serve to relieve any surplus lines licensee involved in any transaction subject to this article from compliance with any other section of this article.
(1617 added Dec. 18, 1992, P.L.1519, No.178)

Section 1618 Surplus lines licensee with binding authority

Surplus Lines Licensee with Binding Authority.Any surplus lines licensee who is granted binding or underwriting authority by an eligible surplus lines insurer shall be subject to regulations and rules promulgated, from time to time, by the department.
(1618 added Dec. 18, 1992, P.L.1519, No.178)

Section 1619. Records of surplus lines licensee

Records of Surplus Lines Licensee.(a) Each surplus lines licensee shall keep in its office a full and true record of each surplus lines insurance contract placed by or through it, including a copy of the policy, certificate, cover note or other evidence of insurance, showing such of the following items as may be applicable:
(1) Amount of the insurance and perils insured.
(2) Brief description of the risk insured and its location.
(3) Gross premium charged.
(4) Any return premium paid.
(5) Rate of premium charged for each risk insured.
(6) Effective date and terms of the contract.
(7) Name and address of the insured.
(8) Name and address of the eligible surplus lines insurer and any nonadmitted insured involved pursuant to section 1606.
(9) Amount of tax and other sums to be collected from the insured.
(10) Identity of the producing broker, any confirming correspondence from the insurer or its representative and the application.
(11) A copy of the written notice required by section 1408.
(b) The record of each contract shall be kept open at all reasonable times to examination by the department without notice for a period of not less than five (5) years following termination of the contract.
(1619 amended July 10, 2002, P.L.749, No.110)

Section 1620. Monthly reports

Monthly Reports.Within thirty (30) days following the end of each month, each surplus lines licensee shall file with the department, on forms prescribed by the department, a verified report in duplicate of all surplus lines insurance transacted during the preceding month.
(1620 added Dec. 18, 1992, P.L.1519, No.178)

Section 1621. Surplus lines tax

Surplus Lines Tax.(a) There is hereby levied a tax of three per centum (3%) on all premiums charged for insurance which is placed with either an eligible surplus lines insurer, other than a risk retention group, or other nonadmitted insurer in accordance with this article, such taxes to be based on the gross premiums charged less any return premiums. This tax shall be in addition to the full amount of the gross premium charged by the insurer for the insurance. The tax on any unearned portion of the premium shall be returned to the insured.
(b) Neither the surplus lines licensee nor the producing broker shall pay directly or indirectly such tax or any portion thereof, either as an inducement to the insured to purchase the insurance or for any other reason.
(c) The surplus lines licensee shall collect from the insured or the producing broker the amount of the tax at the time of delivery of the initial policy, cover note or other evidence of insurance or at such time thereafter as is reasonably consistent with normal credit terms customary in the business. Each surplus lines licensee shall, on or before January 31 of each year, file with the Department of Revenue a report of all transactions involving the placement of insurance with either an eligible surplus lines insurer or other nonadmitted insurers during the previous calendar year. The report shall set forth the name of the insured, identification of the insurer, the type of insurance, gross premiums charged less any return premiums allowed and the tax due as provided in this section. The remittance for the taxes due shall accompany this report. Such report shall be made on forms prescribed and furnished by the Department of Revenue. A copy of the report shall be filed with the commissioner by the surplus lines licensee.
(d) In the event that a placement of insurance involves subjects of insurance resident, located or to be performed in one or more states other than this Commonwealth, then the premium taxes provided for in this section shall be levied only on that portion of the premium reasonably ascribable to that portion of the risk situated in this Commonwealth.
(e) With respect to insurance placed with or issued by a risk retention group which is an eligible surplus lines insurer, there is hereby levied a tax of two per centum (2%) on all premiums charged for risks resident, located or to be performed in this Commonwealth. The risk retention group shall be responsible for the payment of the taxes levied in this article in accordance with procedures set forth in Article XV.
(f) The settlement and resettlement of taxes imposed by this article, including the granting of extensions of time to file reports and the rights of the taxpayers to present and prosecute a petition for resettlement, a petition for review or an appeal to court or to file a petition for refund and the imposition of interest and penalties, shall be governed by the provisions of the act of March 4, 1971 (P.L.6, No.2), known as the "Tax Reform Code of 1971," as approved in the case of capital stock and franchise taxes.
(1621 added Dec. 18, 1992, P.L.1519, No.178)

Section 1622. Tax on independently procured insurance

Tax on Independently Procured Insurance.The tax provided by section 1621(a) is imposed upon an insured who independently procures insurance on a subject of insurance resident, located or to be performed in this Commonwealth from a nonadmitted insurer or continues or renews such independently procured insurance. The insured shall, within thirty (30) days after the date when such insurance was independently procured, continued or renewed, report such transaction on forms prescribed by the Department of Revenue. This report shall set forth the information required of surplus lines licensees as required in section 1621(c). The tax of three per centum (3%) shall be paid on the date the report is due as provided in this section. If the independently procured insurance covers risks resident, located or to be performed in one or more states other than this Commonwealth, the premium taxes shall be prorated in accordance with provisions in section 1621(d). A copy of such report shall be filed with the commissioner by the insured.
(1622 added Dec. 18, 1992, P.L.1519, No.178)

Section 1623 Suspension, revocation or nonrenewal of surplus lines licensee's license

Suspension, Revocation or Nonrenewal of Surplus Lines Licensee's License.The department may suspend, revoke or refuse to renew the license of a surplus lines licensee after notice and a hearing, as provided under the applicable provision of the laws of this Commonwealth, upon any one or more of the following grounds:
(3) Closing of the surplus lines licensee's office for a period of more than thirty (30) business days, unless permission is granted by the department.
(4) Failure to make and file required reports.
(5) Failure to transmit required tax on surplus lines premiums.
(7) Failure to remit premiums due insurers or return premiums due insureds in the normal course of business and within reasonable time limits.
(8) Violation of any provision of this article.
(9) For any other cause for which an insurance agent's or broker's license could be denied, revoked or suspended or refused upon renewal.
(1623 amended July 10, 2002, P.L.749, No.110)

Section 1624. Service of process in actions against surplus lines insurer

Service of Process in Actions Against Surplus Lines Insurer.(a) An eligible surplus lines insurer may be sued upon any cause of action arising in this Commonwealth under any surplus lines insurance contract made by it or evidence of insurance issued or delivered by the surplus lines licensee. Service of process shall be made pursuant to the procedures provided by 42 Pa.C.S. Ch. 53 Subch. B (relating to interstate and international procedure). Any such surplus lines insurance contract or evidence of insurance delivered by the surplus lines licensee shall contain a provision stating the substance of this section and designating the person to whom process shall be mailed.
(b) Each nonadmitted insurer accepting surplus lines insurance shall be deemed thereby to have subjected itself to accepting service of process under 42 Pa.C.S. Ch. 53 Subch. B.
(c) The service of process procedures provided in this section are in addition to any other methods provided by law for service of process upon insurers.

(1624 amended July 10, 2002, P.L.749, No.110)

Section 1625. Penalties
Penalties.(a) Any surplus lines licensee who, in this Commonwealth, represents or aids a nonadmitted insurer in violation of this article commits a misdemeanor of the third degree and shall, upon conviction, be sentenced to pay a fine of not more than one thousand ($1,000) dollars.

(b) In addition to any other penalty provided for in subsection (a) or otherwise provided by law, including any suspension, revocation or refusal to renew a license, any person, firm, association or corporation violating any provision of this article shall be liable to a civil penalty not exceeding one thousand ($1,000) dollars for the first offense and not exceeding two thousand ($2,000) dollars for each succeeding offense.

(c) The penalties in this section are not exclusive remedies. Penalties may also be assessed under the act of July 22, 1974 (P.L.589, No.205), known as the "Unfair Insurance Practices Act," and any other applicable statute.

(1625 added Dec. 18, 1992, P.L.1519, No.178)

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