§ 27-51-4 - Required contract provisions.
SECTION 27-51-4
§ 27-51-4 Required contract provisions.– No person, firm, association, or corporation acting in the capacity of an MGAshall place business with an insurer unless there is in force a writtencontract between the parties which sets forth the responsibilities of eachparty and where both parties share responsibility for a particular function,specifies the division of the responsibilities, and which contains thefollowing minimum provisions:
(1) The insurer may terminate the contract for cause uponwritten notice to the MGA. The insurer may suspend the underwriting authorityof the MGA during the pendency of any dispute regarding the cause fortermination;
(2) The MGA will render accounts to the insurer detailing alltransactions and remit all funds due under the contract to the insurer on notless than a monthly basis;
(3) All funds collected for the account of an insurer will beheld by the MGA in a fiduciary capacity in a bank that is a member of theFederal Reserve System. This account shall be used for all payments on behalfof the insurer. The MGA may retain no more than three (3) months estimatedclaims payments and allocated loss adjustment expenses;
(4) Separate records of business written by the MGA will bemaintained. The insurer shall have access and the right to copy all accountsand records related to its business in a form usable by the insurer, and thecommissioner shall have access to all books, bank accounts, and records of theMGA in a form usable to the commissioner;
(5) The contract may not be assigned in whole or part by theMGA;
(6) Appropriate underwriting guidelines including:
(A) The maximum annual premium volume;
(B) The basis of the rates to be charged;
(C) The types of risks which may be written;
(D) Maximum limits of liability;
(E) Applicable exclusions;
(F) Territorial limitations;
(G) Policy cancellation provisions; and
(H) The maximum policy period;
(ii) The insurer shall have the right to cancel or not torenew any policy of insurance subject to the applicable laws and regulationsconcerning the cancellation and nonrenewal of insurance policies.
(7) If the contract permits the MGA to settle claims onbehalf of the insurer:
(i) All claims must be reported to the company in a timelymanner;
(ii) A copy of the claim file will be sent to the insurer atits request or as soon as it becomes known that the claim:
(A) Has the potential to exceed an amount determined by thecommissioner or exceeds the limit set by the company, whichever is less;
(B) Involves a coverage dispute;
(C) May exceed the MGA's claims settlement authority;
(D) Is open for more than six (6) months; or
(E) Is closed by payment of an amount set by the commissioneror an amount set by the company, whichever is less;
(iii) All claim files will be the joint property of theinsurer and MGA. Upon an order of liquidation of the insurer the files shallbecome the sole property of the insurer or its estate; the MGA shall havereasonable access to and the right to copy the files on a timely basis;
(iv) Any settlement authority granted to the MGA may beterminated for cause upon the insurer's written notice to the MGA or upon thetermination of the contract. The insurer may suspend the settlement authorityduring the pendency of any dispute regarding the cause for termination.
(8) Where electronic claims files are in existence, thecontract must address the timely transmission of the data;
(9) If the contract provides for a sharing of interim profitsby the MGA, and the MGA has the authority to determine the amount of theinterim profits by establishing loss reserves or controlling claim payments, orin any other manner, interim profits will not be paid to the MGA until one yearafter they are earned for property insurance business and five (5) years afterthey are earned on casualty business and not until the profits have beenverified pursuant to § 27-51-5; and
(10) The MGA shall not:
(i) Bind reinsurance or retrocessions on behalf of theinsurer, except that the MGA may bind facultative reinsurance contractspursuant to obligatory facultative agreements if the contract with the insurercontains reinsurance underwriting guidelines including, for both reinsuranceassumed and ceded, a list of reinsurers with which the automatic agreements arein effect, the coverage and amounts or percentages that may be reinsured, andcommission schedules;
(ii) Commit the insurer to participate in insurance orreinsurance syndicates;
(iii) Appoint any producer without assuring that the produceris lawfully licensed to transact the type of insurance for which he or she isappointed;
(iv) Without prior approval of the insurer, pay or commit theinsurer to pay a claim over a specified amount net of reinsurance, which shallnot exceed one percent (1%) of the insurer's policyholder's surplus as ofDecember 31 of the last completed calendar year;
(v) Collect any payment from a reinsurer or commit theinsurer to any claim settlement with a reinsurer, without prior approval of theinsurer. If prior approval is given, a report must be promptly forwarded to theinsurer;
(vi) Permit its subproducer to serve on the insurer's boardof directors;
(vii) Jointly employ an individual who is employed with theinsurer; or
(viii) Appoint a sub-MGA.