Unauthorized Insurers and Surplus Lines

Ark. Code Ann. tit. 23, ch. 65

in effect

Ark. Code Ann. § 23-65-101 Unauthorized insurance transactions prohibited.

(a)(1) No person or entity in this state shall act as agent or broker for or otherwise represent or aid any insurer, health maintenance organization, multiple employer welfare arrangement, multiple employer trust, association, or any other person or entity in the solicitation, negotiation, or effectuation of insurance, inspection of risks, fixing of rates, investigation or adjustment of losses, collection of premiums, or in any other manner in the transaction of insurance with respect to subjects of insurance resident, located, or to be performed in this state if that person or entity is not authorized or licensed by the State Insurance Department for those purposes. (2)(A) No person or entity shall act as a producer, adjuster, or consultant without first obtaining appropriate licensure or registration as required by the insurance laws of this state for the transaction of insurance with respect to subjects of insurance or self-insurance resident, located, or to be performed in this state. (B) No person or entity shall act as a multiple employer trust or multiple employer welfare arrangement without first obtaining appropriate registration or licensing as required by § 23-92-101. (C) No person or entity shall act as a third-party administrator for a multiple employer trust, multiple employer welfare arrangement, collectively bargained trust, self-insurance plan, or any other plan providing accident and health insurance benefits to the citizens of this state without first obtaining appropriate registration as required by § 23-92-201 et seq. (D) Any producer who knows or has reason to know that a health plan is not licensed in accordance with the Arkansas Insurance Code shall immediately report the health plan to the department. (b)(1)(A) The Insurance Commissioner may summarily order a person or entity to cease and desist from an act or practice when the commissioner has reason to believe that the person or entity has not complied with the requirements of this section or any other provision of the Arkansas Insurance Code. (B) Upon the entry of the cease and desist order, the commissioner shall promptly notify the person or entity named: (i) That the order has been entered; (ii) The reasons for the order; and (iii) Of the person's or entity's right to a hearing on the order. (2)(A) A hearing shall be held on the written request of the person or entity named in the cease and desist order if the commissioner receives the request within thirty (30) days of the date of the entry of the order or if otherwise ordered by the commissioner. (B) If no hearing is requested and none is ordered by the commissioner, the order will remain in effect until it is modified or vacated by the commissioner. (C) If a hearing is requested or ordered and after notice of an opportunity for hearing, the commissioner may affirm, modify, or vacate the cease and desist order. (D) The person or entity named in the cease and desist order shall have the burden of proving: (i) That the actions, methods, or practices described in the order are not in violation of the Arkansas Insurance Code; and (ii) The grounds upon which the commissioner should modify or vacate an order issued under this section. (3)(A) After issuance of an order under subdivision (b)(1)(B) of this section, the commissioner may apply to Pulaski County Circuit Court to temporarily or permanently enjoin the act or practice and to enforce compliance with the Arkansas Insurance Code or any rule or order under the Arkansas Insurance Code. (B) However, the commissioner may apply directly to Pulaski County Circuit Court for a temporary or permanent injunction under subdivision (b)(3)(A) of this section. (C) Upon a proper showing, the court shall enter a permanent or temporary injunction, restraining order, or writ of mandamus. (D) The commissioner shall not be required to post a bond. (c) The commissioner may also seek and the appropriate court may grant any other ancillary relief which may be in the public interest, including the appointment of a receiver, temporary receiver, conservator, or declaratory judgment, obtaining an accounting, disgorgement, assessment of a fine, or other relief as may be appropriate in the public interest. (d) This section does not prohibit or restrict the informal disposition of a proceeding by stipulation, settlement, consent, or default. (e) Any insurance producer licensed in this state, or any other person, who knowingly sells, solicits, or negotiates a product of an unauthorized person or entity in violation of this section or who knowingly represents or aids an unauthorized person or entity in violation of this section shall be guilty of a Class D felony. (f) Any insurance producer licensed in this state, or any other person, who sells, solicits, or negotiates a product of an unauthorized person or entity in violation of this section or who represents or aids an unauthorized person or entity in violation of this section may be personally liable for all damages caused by the unauthorized person or entity, including claims unpaid by the unauthorized person or entity. (g) Any person or entity who violates or otherwise fails to comply with a cease and desist order of the commissioner under this section while that order is in effect may be subject, at the discretion of the commissioner, to any one (1) or more of the following: (1) A monetary penalty of not more than ten thousand dollars ($10,000); (2) Suspension or revocation of the person's or entity's license or registration; and (3) Upon the commissioner's petition filed in Pulaski County Circuit Court and upon good cause shown, that court may order injunctive relief. (h) The following shall be applicable to hearings held, orders issued, and penalties levied by the commissioner under this section: (1) The provisions of § 23-61-301, as to witnesses and evidence; (2) Section 23-61-302, as to immunity from prosecution; (3) The provisions of §§ 23-61-303 — 23-61-305, as to hearings; (4) The provisions of §§ 23-61-306 and 23-61-307, as to orders on hearings and appeals of orders; (5) The provisions of § 23-66-210(a)(1), as to monetary penalties; and (6) The provisions of § 23-66-212, as to judicial review of cease and desist orders. (i) The commissioner may promulgate such reasonable rules as are necessary to carry out the provisions of this section. (j)(1) The commissioner shall have the power to examine and investigate the affairs of every person or entity suspected of engaging in activities which are prohibited by this section or by any other provision of the Arkansas Insurance Code. (2) All licensees of the commissioner shall assist the commissioner in examinations and investigations conducted under this section. (k) The powers vested in the commissioner by this section shall be additional to any other powers to enforce any penalties, fines, or forfeitures authorized by law or other provisions of the Arkansas Insurance Code with respect to activities that are prohibited by this section or the Arkansas Insurance Code. (l) This section shall not apply to: (1) Acceptance of service of process by the commissioner under § 23-65-203; and (2) Surplus lines insurance and other transactions as to which a certificate of authority is not required of an insurer, as stated in § 23-63-201.

Ark. Code Ann. § 23-65-102 Suits by unauthorized insurers prohibited.

As to transactions not permitted under § 23-63-201 , no unauthorized insurer shall institute or file, or cause to be instituted or filed, any suit, action, or proceeding in this state to enforce any right, claim, or demand arising out of any insurance transaction in this state until the insurer has obtained a certificate of authority to transact such insurance in this state.

Ark. Code Ann. § 23-65-103 Report and tax of independently procured coverages.

(a)(1) An insured or self-insured whose home state is this state who directly procures, causes to be procured, continues, or renews insurance in an unauthorized insurer, including surplus lines insurance when procured without use of a surplus lines broker pursuant to the insurance laws of this state, within thirty (30) days after the date the insurance was procured, continued, or renewed, shall file a written report with the Insurance Commissioner on forms designated by the commissioner and furnished to the insured upon request. (2) The report shall show: (A) The name and address of each named insured; (B) The name and address of the insurer; (C) The subject of the insurance; (D) A general description of the coverage; (E) The amount of premium currently charged; and (F) Such additional pertinent information as is reasonably requested by the commissioner. (3) If the insurance also covers subjects of insurance resident, located, or to be performed outside this state, a proper pro rata portion of the entire premium payable for the insurance shall be allocated as to the subjects of insurance resident, located, or to be performed in this state, for the purposes of this section. (b) Insurance in an unauthorized insurer procured through negotiations or an application, in whole or in part, occurring or made within this state, or for which premiums are remitted directly or indirectly from within this state, is insurance procured, continued, or renewed in this state within the intent of subsection (a) of this section. (c)(1) For the general support of the government of this state there is levied upon the obligation, chose in action, right represented by the premium charged, or payable for the insurance a tax at the rate of two percent (2%) of the net direct amount of the premium. (2) The insured shall withhold the amount of the tax from the amount of premium charged by and otherwise payable to the insurer for the insurance, and within thirty (30) days after the insurance was so procured, continued, or renewed, and coincidentally with the filing of the report with the commissioner required by subsection (a) of this section, the insured shall pay the amount of the tax to the Treasurer of State through the commissioner. (d) If the insured fails to withhold from the premium the amount of tax levied under this section, the insured is liable for the amount and shall pay the amount to the commissioner within the time stated in subsection (c) of this section. (e) If the tax imposed under this section is delinquent, it shall bear interest at the rate of six percent (6%) per annum, compounded annually. (f) The tax is collectible from the insured by civil action brought by the commissioner. (g) This section does not abrogate or modify and shall not be construed or deemed to abrogate or modify § 23-65-101, § 23-65-102, or any other provision of the insurance laws of this state. (h) This section does not apply to life or accident and health insurance. (i)(1) The tax specified in subsection (c) of this section is not due and payable to this state if the unlicensed or unauthorized insurer reports and pays premium tax to this state under § 26-57-603 et seq., or other applicable premium tax laws for these independently procured coverages. (2) Upon receipt of a duplicate payment of tax from the insured and the unlicensed or unauthorized insurer, this state shall refund to the insured the amount of the duplicate payment.

Ark. Code Ann. § 23-65-104 Records produced on order.

(a)(1) Every person as to whom insurance is placed with an unauthorized insurer, upon the Insurance Commissioner's order, shall produce for the commissioner's examination all policies and other documents evidencing the insurance and shall disclose to the commissioner the amount of gross premiums paid or agreed to be paid for the insurance. (2) For each refusal to obey the order, the person shall be liable to a fine of not more than one hundred dollars ($100) for each day of disobedience. (b) This section does not apply to life insurance and accident and health insurance.

Ark. Code Ann. § 23-65-201 Title — Interpretation.

(a) This subchapter constitutes and may be cited as the “Unauthorized Insurers Process Act”. (b) This subchapter shall be so interpreted as to effectuate its general purpose to make uniform the law of those states which enact it.

Ark. Code Ann. § 23-65-202 Commissioner process agent.

Delivery, effectuation, or solicitation of any insurance contract, by mail or otherwise, within this state by an unauthorized insurer, or the performance within this state of any other service or transaction connected with such insurance by or on behalf of the insurer, shall be deemed to constitute an appointment by the insurer of the Insurance Commissioner and his or her successors in office as its attorney, upon whom may be served all lawful process issued within this state in any action or proceeding against the insurer arising out of any such contract or transaction; and shall be deemed to signify the insurer's agreement that any such service of process shall have the same legal effect and validity as personal service of process upon it in this state.

Ark. Code Ann. § 23-65-203 Service of process.

(a) Service of process upon any such insurer pursuant to § 23-65-202 shall be made by delivering to and leaving with the Insurance Commissioner or some person in apparent charge of his or her office two (2) copies thereof and the payment to him or her of such fees as may be prescribed by law. The commissioner shall forthwith mail by registered mail one (1) of the copies of such process to the defendant at its principal place of business last known to the commissioner, and shall keep a record of all process so served upon him or her. Such service of process is sufficient, provided notice of such service and a copy of the process are sent within ten (10) days thereafter by registered mail by the plaintiff's attorney to the defendant at its last known principal place of business, and the defendant's receipt or receipt issued by the post office with which the letter is registered, showing the name of the sender of the letter and the name and address of the person to whom the letter is addressed, and the affidavit of the plaintiff's attorney showing a compliance herewith are filed with the clerk of the court in which such action is pending on or before the date the defendant is required to appear, or within such further time as the court may allow. (b) Service of process in any such action, suit, or proceeding shall in addition to the manner provided in subsection (a) of this section be valid if served upon any person within this state, who in this state on behalf of the insurer is: (1) Soliciting insurance; (2) Making any contract of insurance or issuing or delivering any policies or written contracts of insurance; or (3) Collecting or receiving any premium for insurance and a copy of the process is sent within ten (10) days thereafter by registered mail by the plaintiff's attorney to the defendant at the last known principal place of business of the defendant, and the defendant's receipt, or the receipt issued by the post office with which the letter is registered, showing the name of the sender of the letter and the name and address of the person to whom the letter is addressed, and the affidavit of the plaintiff's attorney showing a compliance herewith are filed with the clerk of the court in which such action is pending on or before the date the defendant is required to appear, or within such further time as the court may allow. (c) No plaintiff or complainant shall be entitled to a judgment by default under this section until the expiration of thirty (30) days from the date of the filing of the affidavit of compliance. (d) Nothing in this section contained shall limit or abridge the right to serve any process, notice, or demand upon any insurer in any other manner now or hereafter permitted by law.

Ark. Code Ann. § 23-65-204 Exemptions from service-of-process provisions.

Sections 23-65-202, 23-65-203, and 23-65-205 shall not apply to surplus line insurance lawfully effectuated under this chapter, or to reinsurance, nor to any action or proceeding against an unauthorized insurer arising out of: (1) Wet marine and foreign trade insurance; (2) Insurance on subjects located, resident, or to be performed wholly outside this state or on vehicles or aircraft owned and principally garaged outside this state; (3) Insurance on property or operations of railroads engaged in interstate commerce; or (4) Insurance on aircraft or cargo of such aircraft or against liability, other than employer's liability, arising out of the ownership, maintenance, or use of such aircraft, when the policy or contract contains a provision designating the Insurance Commissioner as its attorney for the acceptance of service of lawful process in any action or proceeding instituted by or on behalf of an insured or beneficiary arising out of any such policy, or when the insurer enters a general appearance in any such action.

Ark. Code Ann. § 23-65-205 Defense of action by unauthorized insurer — Damages and attorney’s fees.

(a) Before an unauthorized insurer shall file or cause to be filed any pleading in any action or proceeding instituted against it under §§ 23-65-202 and 23-65-203, the insurer shall: (1) Procure a certificate of authority to transact insurance in this state; or (2) Deposit with the clerk of the court in which such action or proceeding is pending cash or securities or file with the clerk a bond with good and sufficient sureties, to be approved by the court, in an amount to be fixed by the court sufficient to secure the payment of any final judgment which may be rendered in such an action. The court may in its discretion make an order dispensing with the deposit or bond when the insurer makes a showing satisfactory to the court that it maintains in a state of the United States funds or securities, in trust or otherwise, sufficient and available to satisfy any final judgment which may be entered in such an action or proceeding and that the insurer will pay any final judgment entered therein without requiring suit to be brought on the judgment in the state where such funds or securities are located. (b) The court in any action or proceeding in which service is made in the manner provided in § 23-65-203 may, in its discretion, order such postponement as may be necessary to afford the defendant reasonable opportunity to comply with the provisions of subsection (a) of this section, and to defend the action. (c) Nothing in subsection (a) of this section is to be construed to prevent an unauthorized insurer from filing a motion to quash or to set aside the service of any process made in the manner provided in § 23-65-203 hereof on the ground either: (1) That such unauthorized insurer has not done any of the acts enumerated in § 23-65-202; or (2) That the person on whom service was made pursuant to § 23-65-203(a) was not doing any of the acts therein enumerated. (d) Any such insurer shall be subject to the provisions of § 23-79-208.

Ark. Code Ann. § 23-65-301 Title.

This subchapter shall be known and may be cited as the “Surplus Lines Insurance Law”.

Ark. Code Ann. § 23-65-302 Exceptions.

This subchapter does not apply to reinsurance or to the following types of insurance when placed by licensed agents or brokers of this state: (1) Wet marine and foreign trade insurance; (2) Insurance on subjects that are: (A) Located, resident, or to be performed outside this state; or (B) On vehicles or aircraft principally garaged outside this state; (3) Insurance on property or operation of railroads engaged in interstate commerce; (4) Accident and health coverage; and (5) Insurance of aircraft: (A) Owned or operated by manufacturers of aircraft; (B) Operated in scheduled interstate flight; (C) Cargo; or (D) Against liability, other than workers' compensation and employer's liability, arising out of the ownership, maintenance, or use of the aircraft.

Ark. Code Ann. § 23-65-303 Insurer not admitted.

(a) The permission granted in this law to place any insurance in a nonadmitted insurer shall not be deemed or construed to authorize that insurer to otherwise transact an insurance business in this state. Further, this limited permission shall not be deemed or construed so as to exempt nonadmitted insurers from the principles of the common law of insurance or from the same statutory and common law penalties that may attach in favor of insureds in the event of disputes or litigation between insureds and admitted insurers. (b) A contract of insurance carried out by an unauthorized insurer in violation of this subchapter is voidable at the instance of the insured.

Ark. Code Ann. § 23-65-304 Definitions.

As used in this subchapter: (1) “Affiliated group” means a group of entities in which each entity, with respect to an insured, controls, is controlled by, or is under common control with the insured; (2) “Alien insurer” means an insurance company incorporated or formed under the laws of a country other than the United States; (3) “Authorized insurer” means an insurance company qualified and licensed to transact business under Arkansas Code Title 23, Subtitle 3; (4) “Control” means: (A) To own, control, or have the power of an entity directly, indirectly, or acting through one (1) or more other persons to vote twenty-five percent (25%) or more of any class of voting securities of another entity; or (B) To direct by an entity, in any manner, the election of a majority of the directors or trustees of another entity; (5)(A) “Exempt commercial purchaser” means a person purchasing commercial insurance that, at the time of placement, meets the following requirements: (i)(a) The person employs or retains a qualified risk manager to negotiate insurance coverage. (b) A qualified risk manager with respect to a policyholder of commercial insurance means a person who meets the definition of qualified risk manager in section 527 of the Nonadmitted and Reinsurance Reform Act of 2010, Pub. L. No. 111-203; (ii) The person has paid aggregate nationwide commercial property and casualty insurance premiums in excess of one hundred thousand dollars ($100,000) in the immediately preceding twelve (12) months; and (iii) The person meets at least one (1) of the following criteria: (a) The person possesses a net worth in excess of twenty million dollars ($20,000,000), as the amount is adjusted under subdivision (5)(B) of this section; (b) The person generates annual revenue in excess of fifty million dollars ($50,000,000), as the amount is adjusted under subdivision (5)(B) of this section; (c) The person employs more than five hundred (500) full-time or full-time-equivalent employees per individual insured or is a member of an affiliated group employing more than one thousand (1,000) employees in the aggregate; (d) The person is a not-for-profit organization or public entity generating annual budgeted expenditures of at least thirty million dollars ($30,000,000), as the amount is adjusted under subdivision (5)(B) of this section; or (e) The person is a municipal corporation with a population in excess of fifty thousand (50,000) inhabitants. (B) Beginning on January 1, 2015, and one (1) time every five (5) years thereafter, the Insurance Commissioner shall by rule adjust the amounts in subdivisions (5)(A)(iii)(a) and (b) and (5)(A)(iii)(d) of this section to reflect the percentage change in the Consumer Price Index for All Urban Consumers published by the Federal Bureau of Labor Statistics for the five-year period immediately preceding January 1 of the year of adjustment; (6)(A) “Home state” means, except as provided in subdivision (6)(B) of this section, with respect to an insured: (i)(a) The state in which an insured maintains its principal place of business or the state that is an individual's principal residence. (b) As used in subdivision (6)(A)(i)(a) of this section, “principal place of business” means the state in which the insured maintains its headquarters and where the insured's high-level officers direct, control, and coordinate the business activities of the insured; or (ii) If one hundred percent (100%) of the insured risk is located out-of-state as referred to in subdivision (6)(A)(i) of this section, the state to which the greatest percentage of the insured's taxable premium for the insurance contract is allocated. (B) If more than one (1) insured from an affiliated group are named insureds on a single nonadmitted insurance contract, “home state” means the home state of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract as determined under subdivision (6)(A) of this section; (7) “Nonadmitted insurance” or “surplus lines insurance” means property and casualty insurance policies permitted to be placed directly or through a surplus lines broker with a nonadmitted insurer eligible to accept the insurance; (8) “Premium tax” means, with respect to surplus lines or independently procured insurance coverage, any tax, fee, assessment, or other charge imposed by a government entity directly or indirectly based on any payment made as consideration for an insurance contract for the insurance, including premium deposits, assessments, registration fees, and any other compensation given in consideration for a contract of insurance; (9) “Qualified risk manager” means, with respect to a policyholder of commercial insurance, a person who meets the definition in section 527 of the Nonadmitted and Reinsurance Reform Act of 2010, Pub. L. No. 111-203, and the following requirements: (A) The person is an employee of or third-party consultant retained by the commercial policyholder; (B) The person provides skilled services in loss prevention, loss reduction, risk and insurance coverage analysis, or purchase of insurance; and (C) The person has: (i) A bachelor's degree or higher from an accredited college or university in: (a) Risk management; (b) Business administration; (c) Finance; (d) Economics; or (e) Any other field determined by a state insurance commissioner or other state regulatory official or entity to demonstrate minimum competence in risk management; (ii) Three (3) years of experience in: (a) Risk financing; (b) Claims administration; (c) Loss prevention; (d) Risk and insurance analysis; or (e) Purchasing commercial lines of insurance; (iii) A designation as: (a) A Chartered Property and Casualty Underwriter issued by the American Institute for Chartered Property and Casualty Underwriters of the Insurance Institute of America; (b) An Associate in Risk Management issued by the American Institute for Chartered Property and Casualty Underwriters of the Insurance Institute of America; (c) A Certified Risk Manager issued by the National Alliance for Insurance Education & Research; (d) A RIMS Fellow issued by the Global Risk Management Institute; or (e) Any other designation, certification, or license determined by the commissioner to demonstrate minimum competency in risk management; (iv) At least seven (7) years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance and any one (1) of the designations specified in subdivision (9)(C)(iii) of this section; (v) At least ten (10) years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance; or (vi) A graduate degree from an accredited college or university in: (a) Risk management; (b) Business administration; (c) Finance; (d) Economics; or (e) Any other field determined by a state insurance commissioner or other state regulatory official or entity to demonstrate minimum competence in risk management; (10) “State” includes any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the United States Virgin Islands, and American Samoa; (11) “Surplus lines broker” means an individual, firm, or corporation that is licensed in a state to sell, solicit, or negotiate insurance when this state is the home state of the insured; (12) “Surplus lines insurer” means an unauthorized company in which nonadmitted insurance coverage may be placed; and (13) “Unauthorized insurer” means an insurance company that is not licensed to engage in the business of insurance in this state.

Ark. Code Ann. § 23-65-305 Conditions of procurement.

(a) If certain insurance coverages cannot be procured from authorized insurers, coverage designated “surplus lines” may be procured from unauthorized insurers subject to the following conditions: (1) The insurance shall be procured through a licensed surplus lines broker; (2) If this state is the home state of the insured: (A) The full amount of insurance required shall not be procurable, after diligent effort has been made, from among authorized insurers who are actually marketing that kind or class of insurance in this state; and (B) The amount of insurance placed in an unauthorized insurer is only the balance over the amount procurable from authorized insurers; and (3) The soliciting agent or broker shall maintain written documentation of compliance with the requirements of this section. (b) Surplus lines insurance may be placed by a surplus lines broker if the nonadmitted insurer: (1) Is authorized to write the type of insurance in its domiciliary jurisdiction; and (2) Meets the following criteria: (A) The nonadmitted insurer has capital and surplus or its equivalent under the laws of its domiciliary jurisdiction that equals the greater of: (i) The minimum capital and surplus requirements under the laws of this state; or (ii) Fifteen million dollars ($15,000,000); and (B) The nonadmitted insurer is a nonadmitted insurer domiciled outside the United States that is listed on the Quarterly Listing of Alien Insurers as maintained by the International Insurers Department of the National Association of Insurance Commissioners. (c)(1) The requirements of subsection (b) of this section may be satisfied by a nonadmitted insurer possessing less than the minimum capital and surplus if the Insurance Commissioner makes an affirmative finding of acceptability. (2) The commissioner shall consider the following factors to determine a finding of acceptability for the requirements of subsection (b) of this section: (A) Quality of management; (B) Capital and surplus of a parent company; (C) Company underwriting profit and investment income trends; (D) Market availability; and (E) Company record and reputation within the industry. (3) The commissioner shall not make a finding of acceptability if the nonadmitted insurer's capital and surplus is less than four million five hundred thousand dollars ($4,500,000). (d) Subdivision (a)(2) of this section does not apply to a surplus lines broker seeking to procure or place nonadmitted insurance in this state for an exempt commercial purchaser if: (1) The surplus lines broker procuring or placing the surplus lines insurance has disclosed to the exempt commercial purchaser that the insurance may or may not be available from the admitted market that would provide greater protection with more regulatory oversight; and (2) The exempt commercial purchaser has subsequently requested in writing the surplus lines broker to procure or place the insurance from a nonadmitted insurer.

Ark. Code Ann. § 23-65-306 Brokers' reports.

(a) At the time of the procuring of surplus lines insurance in this state, when this state is considered the home state of the insured, the surplus lines broker shall file a report with the Insurance Commissioner within sixty (60) days following the end of the calendar quarter stating the facts referenced in §§ 23-65-313 and 23-65-314 and any additional information the commissioner shall require. (b) Reports filed under this section are not subject to public inspection unless the commissioner determines that the public interest or the welfare of the filing broker requires otherwise.

Ark. Code Ann. § 23-65-307 Endorsement of contract.

An insurance contract procured on behalf of an insured whose home state is this state and delivered as surplus lines coverage under this subchapter shall be initiated by or bear the name of the surplus lines broker who procured it and shall contain a conspicuous statement substantially similar to the following: “This contract is registered and delivered as a surplus line coverage under the Surplus Lines Insurance Law, and it may in some respects be different from contracts issued by insurers in the admitted markets, and, accordingly, it may, depending upon the circumstances, be more or less favorable to an insured than a contract from an admitted carrier might be. The protection of the Arkansas Property and Casualty Guaranty Act does not apply to this contract. A tax of four percent (4%) is required to be collected from the insured on all surplus lines premiums.”

Ark. Code Ann. § 23-65-308 Licensing of surplus lines broker.

(a) If an insured's home state is this state, a person shall not procure a contract of surplus lines insurance with a nonadmitted insurer unless the insurer possesses a current surplus lines broker's license issued by the Insurance Commissioner. (b) A person, while licensed as a resident insurance producer of this state as to property, casualty, surety, and marine insurance, who has held the license in this or another state, or both, for three (3) years before application for a surplus lines broker's license, and who is deemed by the commissioner to be competent and trustworthy, or a nonresident applicant holding a surplus lines broker license in his or her country of residency, may be licensed as a surplus lines broker as follows: (1) Application to the commissioner for the license shall be made on forms furnished by the commissioner; (2) The license fee shall be: (A) In the amount stated in § 23-61-401(10) for each license year during any part of which the license is in force; and (B) Paid to the commissioner; (3) The license year shall be from the date of issuance of the license to January 1 next after its issue; (4)(A) Before issuance of the license, a resident applicant shall file with the commissioner securities acceptable to the commissioner in favor of the State of Arkansas in the penal sum of fifty thousand dollars ($50,000), aggregate liability, with unaffiliated entities approved by the commissioner. Thereafter for as long as the license remains in effect, the resident applicant shall keep the securities in force and unimpaired. (B) The securities shall be conditioned that the broker shall conduct business under the license according to the provisions of this subchapter and that he or she will promptly remit the taxes provided by the law. (C) Securities shall not be terminated unless at least sixty (60) days' prior written notice is filed with the commissioner. (D) Securities shall not be required of a nonresident applicant licensed in the applicant's state of residency; (5)(A)(i) Before issuance of the license, the commissioner shall require the applicant to pass a written examination as to his or her competence to act as a surplus lines broker. (ii) An examination shall not be required of a nonresident applicant duly licensed in the applicant's state of residency. (B) The commissioner shall give, conduct, and grade all examinations, or he or she may arrange to have examinations administered and graded by an independent testing service as specified by contract in a fair and impartial manner and without unfair discrimination between individuals examined. (C) The commissioner may require a reasonable waiting period before reexamination of an applicant who failed to pass a previous similar examination. (D) The examination fee shall be the same as that charged an applicant for license as an agent, broker, or solicitor under § 23-61-401. (c) The commissioner may utilize the national insurance producer database of the National Association of Insurance Commissioners or any other equivalent uniform national database for the licensure and renewal of an individual or entity as a surplus lines broker for the purposes of carrying out the Nonadmitted and Reinsurance Reform Act of 2010, Pub. L. No. 111-203.

Ark. Code Ann. § 23-65-309 Acceptance of business from agents by surplus lines brokers.

A licensed surplus lines broker may accept and place surplus lines business for an insurance agent or broker licensed in this state for the kind and class of insurance involved and may compensate the agent or broker therefor.

Ark. Code Ann. § 23-65-310 Surplus lines in solvent insurers.

(a) A surplus lines broker shall place surplus lines insurance only with insurers that have been approved by the Insurance Commissioner. (b)(1) The commissioner may maintain a list of approved foreign and alien surplus lines insurers in addition to those alien insurers maintaining status on the current National Association of Insurance Commissioners' nonadmitted insurers' quarterly listing. (2) The approved list shall not contain: (A) An insurer that is not licensed in at least one (1) state of the United States for the kind of insurance involved; (B) A stock insurer having capital and surplus amounting to less than three million dollars ($3,000,000); (C) A type of insurer, other than stock insurers, having surplus of less than three million dollars ($3,000,000); (D)(i) An alien insurer, unless: (a) The insurer has an established and effective trust fund within the United States administered by a recognized financial institution and held for the benefit of its policyholders; and (b) The trust fund is in the amount of not less than one million dollars ($1,000,000). (ii)(a) The broker may place casualty insurance with an alien insurer or a pool of alien insurers having combined capital and surplus of five million dollars ($5,000,000) or more, so long as the insured signs an affidavit accepting the insurance. (b) The affidavit shall include a statement that the insurance is not available to him or her elsewhere. (iii) The alien insurer shall: (a) Annually report the location and balance of the trust fund to the commissioner as the commissioner prescribes; and (b) Report to the commissioner any change in the location of the trust fund; (E) An insurer owned or controlled by a political sovereign or an agency of a political sovereign; or (F)(i) An insurer that does not maintain on deposit under § 23-63-901 et seq. eligible securities having a market value at all times of at least one hundred thousand dollars ($100,000) conditioned on the payment of creditors or obligees of the insurer in this state and the prompt payment of all claims arising and accruing to any persons during the term of the securities under a policy issued by the insurer. (ii) This subdivision (b)(2)(F) does not apply to foreign and alien surplus lines insurers as of July 21, 2011, if the requirements of the Nonadmitted and Reinsurance Reform Act of 2010, Pub. L. No. 111-203, as it existed on January 1, 2013, are met. (c) Upon receipt of a written request from the commissioner, an insurer shall promptly furnish to the commissioner information concerning its transactions or affairs.

Ark. Code Ann. § 23-65-311 Evidence of insurance — Changes.

(a)(1) Upon placing a surplus lines coverage, the broker shall promptly issue and deliver to the insured evidence of the insurance, consisting either of the policy as issued by the insurer or the surplus lines broker's certificate if the policy is not available. (2)(A) The certificate shall be executed by the broker and show: (i) The subject, coverage, conditions, and term of the insurance; (ii) The premium charged; (iii) Taxes collected from the insured; and (iv) The name and address of the insurer. (B) If the direct risk is assumed by more than one (1) insurer, the certificate shall state the name, address, and proportion of the entire direct risk assumed by each insurer. (b) If there is a change to the identity of the insurers after the issuance and delivery of the certificate, a change to the proportion of the direct risk assumed by the insurers as stated in the broker's original certificate, or a change in any other material respect as to the insurance coverage evidenced by the certificate, the broker shall promptly issue and deliver to the insured a substitute certificate accurately showing the current status of the coverages and the insurers responsible. (c) If a policy issued by the insurer is not available upon placement of the insurance and the broker has issued and delivered his or her certificate as provided in subsection (a) of this section, the broker shall promptly provide upon a request of the insured the policy of the insurer evidencing the insurance. (d) A surplus lines broker who knowingly or negligently issues a false certificate of insurance or who fails to promptly notify the insured of any material change with respect to the insurance by delivery to the insured of a substitute certificate as provided in subsection (b) of this section, upon conviction of the surplus lines broker, shall be subject to the penalties provided by § 23-60-108 or to a greater applicable penalty provided by law. (e)(1)(A) Upon written request, each approved but nonadmitted surplus lines insurer shall mail or deliver the policyholder's claim loss information to the policyholder or his or her surplus lines broker within thirty (30) days from the date of receipt of the request from the policyholder. (B) If the claim loss information is provided to the surplus lines broker, the surplus lines broker shall deliver the claim loss information to the policyholder within seven (7) days from the date of receipt of the claim loss information from the surplus lines insurer. (C) If the surplus lines broker generates the claim loss information for the surplus lines insurer, the claim loss information shall be provided to the policyholder within thirty (30) days from the date of receipt of the request from the policyholder. (2)(A) “Claim loss information” as used in this subsection means the: (i) Date of loss; (ii) Property insured; and (iii) Amount paid. (B) “Claim loss information” as used in this subsection does not include supporting claim file documentation, including without limitation copies of claim files, investigation reports, evaluation statements, insured's statements, and documents protected by a common law or statutory privilege. (3) The surplus lines insurer or the surplus lines broker may charge a reasonable fee for providing the claim loss information as part of the expense of underwriting the policy. (4) The surplus lines insurer and the surplus lines broker are not required to maintain claim loss information for more than five (5) years following the termination of coverage.

Ark. Code Ann. § 23-65-312 Liability of insurer as to losses and unearned premiums.

(a)(1) If a surplus lines risk has been assumed by an unauthorized insurer under this subchapter and the premium has been received by the surplus lines broker who placed the insurance, the insurer shall be deemed to have received the premium due to it for the coverage. (2) The insurer shall be liable to the insured for: (A) Losses covered by the insurance; and (B) Unearned premiums that may become payable to the insured upon cancellation of the insurance. (b) Each unauthorized insurer assuming a surplus lines direct risk under the insurance laws of this state shall be deemed to have subjected itself to the terms of this section. (c) This section shall not deprive the surplus lines insurer of any right of action against the surplus lines broker.

Ark. Code Ann. § 23-65-313 Records of brokers.

(a) Each surplus lines broker shall keep in his or her office a full and true record of each of his or her surplus lines contracts procured within this state where this state is the home state of the insured, including a copy of the daily report, if any, and showing the following items as applicable: (1) Amount of the insurance; (2) Gross premium charged; (3) Return premium paid, if any; (4) Rate of premium charged upon the several items of property; (5) Effective date of the contract and the contract terms; (6) Name and address of the insurer; (7) Name and address of the insured; (8) Brief general description of property insured and where located; and (9) Other information as required by the Insurance Commissioner. (b) The records shall be open to examination by the commissioner and shall be kept available and open to inspection by the commissioner for the next five (5) years following the termination of the contracts.

Ark. Code Ann. § 23-65-314 Quarterly statement.

(a) On or before March 1, June 1, September 1, and December 1 of each year, a surplus lines broker shall file with the Insurance Commissioner a statement for the preceding period of the surplus lines insurance transactions of an insured whose home state is the State of Arkansas. (b) The statement shall be on forms as prescribed and furnished by the commissioner and shall show: (1) The gross amount of each kind of insurance transacted; (2) The aggregate gross premiums charged, exclusive of sums collected to cover state or federal taxes; (3) The aggregate of returned premiums and taxes paid to insureds; (4) The aggregate of net premiums; and (5) Additional information as required by the commissioner.

Ark. Code Ann. § 23-65-315 Tax on surplus lines brokers.

(a) Except as otherwise provided in this section, no later than sixty (60) days following the end of the calendar quarter in which surplus lines insurance was procured, the surplus lines broker shall remit to the Treasurer of State through the Insurance Commissioner a tax of four percent (4%) on the direct premiums written, less return premiums and exclusive of sums collected to cover state or federal taxes, on surplus lines insurance subject to tax transacted by the surplus lines broker during the preceding calendar quarter for the privilege of transacting business as a surplus lines broker in this state. (b) The commissioner may participate in a multistate agreement or enter into a compact for the purpose of reporting, collecting, and apportioning surplus lines insurance premium taxes. (c) If a surplus lines insurance policy covers risks or exposures only partially in this state and the commissioner has entered into an agreement with other states for the apportionment of premium taxes for multistate risks, the tax payable by the surplus lines broker shall be computed and paid on the proportion of the premium that is properly allocable to the risks or exposures located in this state according to the terms of the agreement. (d) This section does not apply to a captive insurance company established under § 19-3-706 to administer a public elementary and secondary school, state-supported institutions of higher education, and state-owned property insurance program.

Ark. Code Ann. § 23-65-316 Penalty for failure to file quarterly statement or remit tax.

(a)(1) If a surplus lines broker fails to file his or her quarterly statement by the due dates in § 23-65-314, he or she shall be liable for a fine of fifty dollars ($50.00) for each day of delinquency commencing with the due date. (2) The Insurance Commissioner may grant a reasonable extension of time within which the statement may be filed for good cause shown and after a written request. (3) The fine may be recovered by an action instituted by the commissioner in any court of competent jurisdiction. (4) The commissioner shall pay to the Treasurer of State any fine so collected. (b)(1) If a surplus lines broker fails to remit the tax as provided by law by the due date, the surplus lines broker shall be liable for a fine of fifty dollars ($50.00) for each day of delinquency commencing with the sixty-first day after the end of the month in which surplus lines insurance was procured. (2) The commissioner shall pay to the Treasurer of State any fine so collected.

Ark. Code Ann. § 23-65-317 Revocation of broker's license.

(a) The Insurance Commissioner shall revoke a surplus lines broker's license: (1) If the broker fails to file his or her quarterly statement or fails to remit the tax as required by law; (2) If the broker fails to maintain an office, keep records, or allow the commissioner to examine his or her records as required by law; or (3) For any cause for which an agent's license may be revoked. (b) The commissioner may suspend or revoke a license whenever he or she deems the suspension or revocation to be for the best interest of the people of this state. (c) The procedures provided by § 23-64-218 for the suspension or revocation of an agent's license shall be applicable to suspension or revocation of a surplus lines broker's license. (d) A broker whose license has been revoked shall not be licensed within one (1) year thereafter or until payment of fines or delinquent taxes.

Ark. Code Ann. § 23-65-318 Action against insurer — Service of process.

(a) When this state is the home state of the insured, an unauthorized insurer may be sued upon any cause of action arising in this state under any contract issued by it as a surplus lines contract, or certificate thereof issued by the surplus lines broker, under the procedure provided in § 23-65-203. (b)(1) If this state is the home state of the insured, an unauthorized insurer issuing the policy or accepting the risk shall be deemed to have authorized service of process against it as provided in this section and to have appointed the Insurance Commissioner as its agent for service of process issuing upon any cause of action arising in this state under any policy. (2) The policy shall contain a provision stating the substance of this section and designating the person to whom the commissioner shall mail process.

Ark. Code Ann. § 23-65-319 Withdrawal of approval.

(a) The Insurance Commissioner may remove an approved surplus lines insurer if the commissioner has reason to believe that the insurer: (1) Is in unsound financial condition; (2) Is no longer eligible under § 23-65-310; (3) Has willfully violated the laws of this state; (4) Does not make reasonably prompt payment of just losses and claims in this state or elsewhere; or (5) Has failed to file its annual statement when due. (b) The commissioner shall promptly mail notice of removals to each surplus lines broker that is currently licensed.

Ark. Code Ann. § 23-65-320 Domestic surplus lines insurers.

(a) A domestic insurer possessing policyholder surplus of at least twenty million dollars ($20,000,000) may be: (1) Designated as a domestic surplus lines insurer with the written approval of the Insurance Commissioner; and (2) Allowed to write surplus lines insurance in any jurisdiction in which it is eligible. (b) A domestic surplus lines insurer is: (1) Deemed a nonadmitted surplus lines insurer in the State of Arkansas; and (2) Deemed a nonadmitted surplus lines insurer under the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203. (c) A domestic surplus lines insurer is not subject to: (1) The Arkansas Property and Casualty Insurance Guaranty Act, § 23-90-101 et seq.; or (2) The Arkansas Life and Health Insurance Guaranty Association Act, § 23-96-101 et seq. (d) A surplus lines broker that obtains surplus lines insurance from a domestic surplus lines insurer shall comply with § 23-65-315. (e) Unless specifically exempt, the insurance laws of this state regarding financial and solvency requirements apply to a domestic surplus lines insurer.

Ark. Code Ann. § 23-65-401 Agreement authorized — Requirements.

(a) The Insurance Commissioner may enter into written multistate agreements or compacts with other state jurisdictions on behalf of the State of Arkansas to provide for cooperation and assistance among member jurisdictions in the administration and collection of taxes imposed on multistate surplus lines insurance. (b) A multistate agreement or compact authorized by this subchapter may provide for: (1) Determining the home state for surplus lines insurers and surplus lines brokers; (2) Establishing the record requirements for surplus lines brokers; (3) Audit procedures; (4) The exchange of information; (5) Uniform criteria for eligibility of insurers and eligibility for licensing of surplus lines brokers; (6) Reporting requirements and reporting periods; (7) Methods for collecting and forwarding surplus lines taxes; (8) Penalties to another jurisdiction; and (9) Rules to facilitate the administration of the multistate agreement or compact. (c) A multistate agreement or compact authorized by this subchapter: (1) Shall not preclude the commissioner from auditing the records of a person subject to this subchapter; (2) Is not effective until filed with the commissioner; and (3) Shall have the same effect as enacted legislation.

Ark. Code Ann. § 23-65-402 Applicability of multistate agreement or compact.

On and after July 21, 2011, the effective date of the Nonadmitted and Reinsurance Reform Act of 2010, Pub. L. No. 111-203, in the event of a conflict, the terms of a multistate agreement or compact shall prevail over conflicting state law.

Ark. Code Ann. § 23-65-403 Committees' approval of agreements or compacts required.

A multistate agreement or compact entered into by the Insurance Commissioner shall be: (1) Considered by the Senate Committee on Insurance and Commerce and the House Committee on Insurance and Commerce; and (2) Reviewed and approved by the Legislative Council.

Source: Public.Resource.Org / UniCourt, Official Code of Arkansas Annotated, Release 78 (2020) (unicourt.github.io/cic-code-ar)URL: https://unicourt.github.io/cic-code-ar/transforms/ar/ocar/r78/gov.ar.code.title.23.htmlFetched: 11/8/2026