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Section 1647.5 Of Article 3. Licensing From California Insurance Code >> Division 1. >> Part 2. >> Chapter 5. >> Article 3.
1647.5
. (a) Each limited liability company, at the time of
licensing pursuant to this chapter and, with respect to surplus line
brokers, Chapter 6 (commencing with Section 1760), and at all times
during which the company holds an active license, is required to
provide security for claims against it as follows:
(1) For claims based upon acts, errors, or omissions arising out of the practice of insurance agency, brokerage, or surplus line brokerage, a licensed limited liability company providing insurance agency, brokerage, or surplus line brokerage services shall comply with the requirements of subparagraph (A) or (B), or pursuant to subdivision (b), some combination of those requirements.
(A) (i) Maintain a policy or policies of insurance against liability imposed on or against it by law for damages arising out of claims in an amount for each claim of at least one hundred thousand dollars ($100,000) multiplied by the number of licensees rendering professional services on behalf of the company, with a minimum required amount of five hundred thousand dollars ($500,000); however, the maximum amount of insurance is not required to exceed five million dollars ($5,000,000) for claims initially asserted in any one calendar year, less amounts paid in defending, settling, or discharging those claims. In addition, the policy shall contain, at a minimum, a provision that the policy cannot be nonrenewed, canceled, or terminated, without providing written notice to the commissioner within 10 days.
(ii) An applicant who wishes to satisfy the requirements of this section wholly, or in part, by maintaining a policy or policies of insurance as set forth in clause (i) shall submit to the commissioner a certification of coverage pursuant to subdivision (d). If a license is automatically issued or renewed without providing this certification, the license may be inactivated by the commissioner upon discovery of the lack of compliance with this paragraph.
(iii) If the policy specified in clause (i) contains a deductible or self-insured retention and the policy provides that the insurer is ultimately responsible for payment of the total amount of the claim up to the policy limits, including the deductible or retention, the policyholder shall not be required to maintain security for payment of its deductible limit or self-insured retention liability under the terms set forth in subparagraph (B).
(iv) If the policy specified in clause (i) contains a deductible limit or self-insured retention and does not provide that the insurer is responsible for payment of the total amount of the claim up to the policy limits, the policyholder shall maintain security for payment of its deductible limit or self-insured retention under the terms set forth in subparagraph (B).
(B) Maintain in trust or bank escrow, cash, bank certificates of deposit, United States Treasury obligations, bank letters of credit, or bonds of insurance companies as security for payment of liabilities imposed by law for damages arising out of all claims in an amount of at least one hundred thousand dollars ($100,000) multiplied by the number of licensees rendering professional services on behalf of the company, with a minimum required amount of five hundred thousand dollars ($500,000); however, the maximum amount of security is not required to exceed five million dollars ($5,000,000) for claims initially asserted in any one calendar year, less amounts paid in defending, settling, or discharging those claims.
(b) For purposes of satisfying the security requirements of this section, a limited liability company may aggregate the security provided by it pursuant to subparagraphs (A) and (B) of paragraph (1) of subdivision (a).
(c) At the time of licensing pursuant to this article, limited liability companies shall file with the commissioner information, in the manner prescribed by the commissioner, and accompanied by all documentation requested by the commissioner, demonstrating compliance with the financial security requirements of this section. Limited liability companies shall also file an annual confirmation with the commissioner, at a time and in a manner, and with documentation, prescribed by the commissioner, demonstrating continuing compliance with the financial security requirements of this section.
(d) If the security requirements of this section are satisfied wholly, or in part, with an insurance policy, then a certification of coverage shall be submitted to the commissioner by the licensee or applicant, and signed by an authorized agent or employee of the insurer. The certification of coverage shall be in the following form:
(1) For claims based upon acts, errors, or omissions arising out of the practice of insurance agency, brokerage, or surplus line brokerage, a licensed limited liability company providing insurance agency, brokerage, or surplus line brokerage services shall comply with the requirements of subparagraph (A) or (B), or pursuant to subdivision (b), some combination of those requirements.
(A) (i) Maintain a policy or policies of insurance against liability imposed on or against it by law for damages arising out of claims in an amount for each claim of at least one hundred thousand dollars ($100,000) multiplied by the number of licensees rendering professional services on behalf of the company, with a minimum required amount of five hundred thousand dollars ($500,000); however, the maximum amount of insurance is not required to exceed five million dollars ($5,000,000) for claims initially asserted in any one calendar year, less amounts paid in defending, settling, or discharging those claims. In addition, the policy shall contain, at a minimum, a provision that the policy cannot be nonrenewed, canceled, or terminated, without providing written notice to the commissioner within 10 days.
(ii) An applicant who wishes to satisfy the requirements of this section wholly, or in part, by maintaining a policy or policies of insurance as set forth in clause (i) shall submit to the commissioner a certification of coverage pursuant to subdivision (d). If a license is automatically issued or renewed without providing this certification, the license may be inactivated by the commissioner upon discovery of the lack of compliance with this paragraph.
(iii) If the policy specified in clause (i) contains a deductible or self-insured retention and the policy provides that the insurer is ultimately responsible for payment of the total amount of the claim up to the policy limits, including the deductible or retention, the policyholder shall not be required to maintain security for payment of its deductible limit or self-insured retention liability under the terms set forth in subparagraph (B).
(iv) If the policy specified in clause (i) contains a deductible limit or self-insured retention and does not provide that the insurer is responsible for payment of the total amount of the claim up to the policy limits, the policyholder shall maintain security for payment of its deductible limit or self-insured retention under the terms set forth in subparagraph (B).
(B) Maintain in trust or bank escrow, cash, bank certificates of deposit, United States Treasury obligations, bank letters of credit, or bonds of insurance companies as security for payment of liabilities imposed by law for damages arising out of all claims in an amount of at least one hundred thousand dollars ($100,000) multiplied by the number of licensees rendering professional services on behalf of the company, with a minimum required amount of five hundred thousand dollars ($500,000); however, the maximum amount of security is not required to exceed five million dollars ($5,000,000) for claims initially asserted in any one calendar year, less amounts paid in defending, settling, or discharging those claims.
(b) For purposes of satisfying the security requirements of this section, a limited liability company may aggregate the security provided by it pursuant to subparagraphs (A) and (B) of paragraph (1) of subdivision (a).
(c) At the time of licensing pursuant to this article, limited liability companies shall file with the commissioner information, in the manner prescribed by the commissioner, and accompanied by all documentation requested by the commissioner, demonstrating compliance with the financial security requirements of this section. Limited liability companies shall also file an annual confirmation with the commissioner, at a time and in a manner, and with documentation, prescribed by the commissioner, demonstrating continuing compliance with the financial security requirements of this section.
(d) If the security requirements of this section are satisfied wholly, or in part, with an insurance policy, then a certification of coverage shall be submitted to the commissioner by the licensee or applicant, and signed by an authorized agent or employee of the insurer. The certification of coverage shall be in the following form:
