Current Status Introducing Body:
SenateBill Number: 1265Ratification Number: 457Act Number: 394Primary Sponsor: Committee (02)Type of Legislation: GBSubject: Insurers, financial examinations ofCompanion Bill Number: 1154 4135Date Bill Passed both Bodies: May 19, 1992Computer Document Number: BBM/9710.BDGovernor's Action: SDate of Governor's Action: Jun 01, 1992Introduced Date: Feb 04, 1992Last History Body: ------Last History Date: Jun 01, 1992Last History Type: Act No. 394Scope of Legislation: StatewideSponsor Committee: Banking and InsuranceSponsor Committee Number: 02Type of Legislation: General Bill
Bill Body Date Action Description CMN ---- ------ ------------ ------------------------------ --- 1265 ------ Jun 01, 1992 Act No. 394 1265 ------ Jun 01, 1992 Signed by Governor 1265 ------ May 27, 1992 Ratified R 457 1265 House May 19, 1992 Read third time, enrolled for ratification 1265 House May 14, 1992 Read second time 1265 House Mar 19, 1992 Debate Adjourned until Thursday, May 14, 1992 1265 House Mar 04, 1992 Committee Report: Favorable 26 1265 House Feb 11, 1992 Introduced, read first time, 26 referred to Committee 1265 Senate Feb 06, 1992 Read third time, sent to House 1265 Senate Feb 05, 1992 Read second time, unanimous consent for third reading on Thursday, February 6, 1992 1265 Senate Feb 04, 1992 Introduced, read first time, placed on Calendar without referenceView additional legislative information at the LPITS web site.
(A394, R457, S1265)
AN ACT TO AMEND SECTIONS 38-13-10 THROUGH 38-13-60, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE EXAMINATION, INVESTIGATION, REPORTS, PENALTIES, AND REMEDIES OF INSURERS, SO AS TO REVISE CURRENT PROVISIONS TO PROVIDE FOR SCHEDULING OF FINANCIAL EXAMINATIONS OF INSURERS, METHOD OF CONDUCTING EXAMINATIONS, CONTENT, FILING, ADOPTION, PUBLICATION, AND USE OF EXAMINATION REPORTS, CONFIDENTIALITY OF ANCILLARY INFORMATION, COST OF EXAMINATIONS, AND IMMUNITY FOR STATEMENTS MADE OR CONDUCT ENGAGED IN IF PERFORMED IN GOOD FAITH WHILE PERFORMING A FINANCIAL EXAMINATION.
Be it enacted by the General Assembly of the State of South Carolina:
Financial examinations of insurers; confidential information; immunity
SECTION 1. Section 38-13-10 and 38-13-30 through 38-13-60 of the 1976 Code and Section 38-13-20, as last amended by Act 363 of 1990, are amended to read:
"Section 38-13-10. (A) The commissioner or his examiners may conduct an examination under this chapter of an insurer as often as the commissioner in his sole discretion considers appropriate but, at a minimum, shall conduct an examination of every insurer licensed in this State not less frequently than once every five years. When the commissioner considers it prudent for the protection of policyholders in this State, he may examine or have examined an insurer applying for admission in this State. In scheduling and determining the nature, scope, and frequency of the examinations, the commissioner shall consider compliance with relevant South Carolina laws and regulations, the results of financial statement analyses and ratios, changes in management or ownership, actuarial opinions, reports of independent certified public accountants, and other criteria set forth in the Examiners' Handbook adopted by the National Association of Insurance Commissioners and in effect when the commissioner exercises his authority under this subsection.
(B) For purposes of completing an examination of an insurer under this chapter, the commissioner may examine or investigate a person or his business in a manner considered necessary or material by the commissioner.
(C) In lieu of an examination under this section of a foreign or an alien insurer licensed in this State, the commissioner may accept an examination report on the insurer prepared by the insurance department for the insurer's state of domicile or port-of-entry state until January 1, 1994. After that time, the reports may be accepted only if one or both of the following apply:
(1) The insurance department at the time of the examination was accredited under the National Association of Insurance Commissioners' Financial Regulation Standards and Accreditation Program;
(2) The examination is performed with the participation of one or more examiners who are employed by the accredited insurance department, and who, after a review of the examination work papers and report, state under oath that the examination was performed in a manner consistent with the standards and procedures required by their department.
Section 38-13-20. (A) Upon determining that an examination must be conducted, the commissioner or his designee shall issue an examination warrant appointing one or more examiners to perform the examination and instructing them as to the scope of the examination. In conducting the examination, the examiner shall observe South Carolina laws and regulations and those guidelines and procedures set forth in the Examiners' Handbook adopted by the National Association of Insurance Commissioners. The commissioner also may employ other guidelines or procedures he considers appropriate.
(B) Every person or insurer and his or its officers, directors, and agents from whom information is sought shall provide to the examiners appointed under subsection (A) timely, convenient, and free access at all reasonable hours at his or its offices to all books, records, accounts, papers, documents, and all computer or other recordings relating to the property, assets, business, and affairs of the person or insurer being examined. If the commissioner considers it necessary to the conduct of the examination, he may require that the person or insurer or his or its agents or affiliated or subsidiary corporations or partnerships furnish the original books and records. The officers, directors, employees, and agents of the insurer or person shall facilitate the examination and aid in the examination so far as it is in their power to do so. The refusal of a person or an insurer by his or its officers, directors, employees, or agents to submit to examination or to comply with a reasonable written request of the examiners is grounds for suspension or revocation of the person's or insurer's certificate of authority to engage in the business of insurance in this State. The commissioner may make the suspension or revocation and the reasons for it public. Proceedings for revocation must be conducted pursuant to Section 38-5-140.
(C) The commissioner or his examiners may issue subpoenas, administer oaths, and examine under oath a person as to matters pertinent to the examination. Upon the failure or refusal of a person to obey a subpoena, the commissioner may petition a court of competent jurisdiction, and upon proper showing the court may enter an order compelling the witness to appear and testify or produce documentary evidence. Failure to obey the court order is punishable as contempt of court.
(D) When making an examination under Section 38-13-10, the commissioner may retain attorneys, appraisers, independent actuaries, independent certified public accountants, or other professionals and specialists as examiners. The cost of the retainment must be borne by the insurer which is the subject of the examination.
(E) Nothing contained in Section 38-13-10 limits the commissioner's authority to:
(1) terminate or suspend an examination to pursue other legal or regulatory action pursuant to the insurance laws of this State. Findings of fact and conclusions made pursuant to an examination are prima facie evidence in a legal or regulatory action;
(2) use and, if appropriate, make public a final or preliminary examination report, examiner or insurer work papers or other documents, or other information discovered or developed during the course of an examination in the furtherance of a legal or regulatory action which the commissioner, in his sole discretion, considers appropriate.
Section 38-13-30. (A) Examination reports must be comprised of only facts appearing upon the books, records, or other documents of the insurer, its agents, or other persons examined or as ascertained from the testimony of its officers or agents or other persons examined concerning its affairs and the conclusions and recommendations the examiners find reasonably warranted from the facts.
(B) No later than sixty days following completion of the examination, the examiner in charge shall file with the department a verified written report of examination under oath. Upon receipt of the verified report, the department shall transmit the report to the insurer examined with a notice which affords the insurer a reasonable opportunity of not more than thirty days to make a written submission or rebuttal with respect to matters contained in the examination report.
(C) After the expiration of the thirty-day period allowed for the receipt of written submissions or rebuttals, the commissioner shall consider and review the report fully with written submissions or rebuttals and relevant portions of the examiner's work papers and enter an order:
(1) adopting the examination report as filed or with modification or corrections. If the examination report reveals that the insurer is operating in violation of law, regulation, or prior order of the commissioner, he may order the insurer to take action the commissioner considers necessary and appropriate to cure the violation;
(2) rejecting the examination report with directions to the examiners to reopen the examination to obtain additional data, documentation, or information and refiling pursuant to subsection (A); or
(3) calling for an investigatory hearing with no less than twenty days' notice to the insurer to obtain additional documentation, data, information, and testimony.
(D)(1) Orders entered pursuant to subsection (C)(1) must be accompanied by findings and conclusions resulting from the commissioner's consideration and review of the examination report, relevant examiner work papers, and written submissions or rebuttals. The order must be considered a final administrative decision and may be appealed pursuant to the Administrative Procedures Act. The order must be served upon the insurer by certified mail, with a copy of the adopted examination report. Within thirty days of the issuance of the adopted report, the insurer shall file affidavits executed by each of its directors stating under oath that they have received a copy of the adopted report and related orders.
(2) A hearing conducted under subsection (C)(3) by the commissioner or his authorized representative must be conducted as a nonadversarial, confidential investigatory proceeding as necessary for the resolution of inconsistencies, discrepancies, or disputed issues apparent upon the face of the filed examination report or raised by or as a result of the commissioner's review of relevant work papers or by the written submission or rebuttal of the insurer. Within twenty days of the conclusion of the hearing, the commissioner shall enter an order pursuant to subsection (C)(1).
(a) The commissioner may not appoint an examiner as an authorized representative to conduct the hearing. The hearing shall proceed expeditiously with discovery by the insurer limited to the examiner's work papers which tend to substantiate assertions set forth in a written submission or rebuttal. The commissioner or his representative may issue subpoenas for the attendance of witnesses or the production of documents considered relevant to the investigation whether under the control of the department, the insurer, or other persons. The documents produced must be included in the record, and testimony taken by the commissioner or his representative must be under oath and preserved for the record. Nothing contained in this section requires the department to disclose information or records which indicate or show the existence or content of an investigation or activity of a criminal justice agency.
(b) The hearing shall proceed with the commissioner or his representative posing questions to the person subpoenaed. After the questions the insurer and the department may present testimony relevant to the investigation. Cross examination may be conducted only by the commissioner or his representative. The insurer and the department may make closing statements and be represented by counsel of their choice.
(E)(1) Upon completion of the examination report under subsection (C)(1), the commissioner shall hold the content of the examination report as private and confidential information for the thirty-day period provided for written submissions or rebuttals. Thirty days after the examination report has been submitted to it if the insurer examined has neither notified the commissioner of its acceptance and approval of the report nor requested to be heard on it, the report must be filed as a public document and is open to public inspection, as long as no court of competent jurisdiction has stayed its publication.
(2) This section does not prohibit the commissioner from disclosing the content of an examination report, preliminary examination report, or results or related matters to the insurance department of this or another state or country, or law enforcement officials of this or another state or agency of the federal government so long as the agency or office receiving the reports, results, or related matters agrees in writing to hold them confidential and in a manner consistent with Sections 38-13-10 through 38-13-60.
(3) If the commissioner determines that regulatory action is appropriate as a result of an examination, he may initiate proceedings or actions provided by law.
(F) All work papers, recorded information, documents, and their copies produced by, obtained by, or disclosed to the commissioner or other persons in the course of an examination made under this chapter must be given confidential treatment, are not subject to subpoena, and must not be made public by the commissioner, or other persons, except to the extent provided in subsection (E). Access also may be granted to the National Association of Insurance Commissioners. The parties shall agree in writing before receiving the information to provide to it the same confidential treatment as required by this section, unless the prior written consent of the insurer to which it pertains has been obtained or unless ordered by a court of competent jurisdiction. The information may be provided to the consumer advocate as provided in Section 37-6-605 pursuant to an appropriate proprietary agreement to ensure confidentiality.
Section 38-13-40. (A) No examiner may be appointed by the commissioner if the examiner, directly or indirectly, has a conflict of interest or is affiliated with the management of or owns a pecuniary interest in a person subject to examination under Section 38-13-10. This section does not preclude automatically an examiner from being:
(1) a policyholder or claimant under an insurance policy;
(2) a grantor of a mortgage or similar instrument on the examiner's residence to a regulated entity if done under customary terms and in the ordinary course of business;
(3) an investment owner in shares of regulated diversified investment companies; or
(4) a settlor or beneficiary or a `blind trust' into which otherwise impermissible holdings have been placed.
(B) Notwithstanding the requirements of this section, the commissioner may retain on an individual basis qualified actuaries, certified public accountants, or other similar individuals who are practicing their professions independently, even though the persons may be employed or retained similarly by persons subject to examination under Section 38-13-10.
Section 38-13-50. The insurer shall pay the charges incurred in the examination, including the expenses of the commissioner and the expenses and compensation of his examiners and assistants. The commissioner promptly shall institute a civil action to recover the expenses of examination against an insurer which refuses or fails to pay.
Section 38-13-60. (A) No cause of action may arise nor may liability be imposed against:
(1) the commissioner, the commissioner's authorized representatives, or an examiner appointed by the commissioner for statements made or conduct performed in good faith while carrying out Sections 38-13-10 through 38-13-40;
(2) a person for communicating or delivering information or data to the commissioner or the commissioner's authorized representative or examiner pursuant to an examination made under Sections 38-13-10 through 38-13-40 if the communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive.
(B) This section does not abrogate or modify common law or statutory privilege or immunity enjoyed by a person identified in subsection (A).
(C) A person identified in subsection (A) may receive attorney's fees and costs if he is the prevailing party in a civil cause of action for libel, slander, or another relevant tort arising out of his activities in carrying out Sections 38-13-10 through 38-13-40 and the party bringing the action was not justified substantially in doing so. For purposes of this section a proceeding is `substantially justified' if it had a reasonable basis in law or fact at the time that it was initiated."
SECTION 2. This act takes effect upon approval by the Governor.
Approved the 1st day of June, 1992.