WSR 08-10-097




[ Insurance Commissioner Matter No. R 2008-04 -- Filed May 7, 2008, 9:48 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 08-03-122.

Title of Rule and Other Identifying Information: Surplus line brokers, these rules increase Washington state's compliance with the standards for licensing and regulating insurance producers, including surplus line brokers. The amendments will clarify the requirements for resident and nonresident surplus line brokers. For example: Surplus line brokers must be licensed as an agent or broker with both property and casualty lines of authority and the state will provide reciprocity to nonresident surplus line brokers on the same basis as another state grants reciprocity to Washington resident surplus line brokers including waiver of testing requirements for a nonresident surplus line broker license applicant who possesses an equivalent license in the applicant's home state. In addition, several sections of rules will be edited for clarity and consistency. WAC 284-15-100 will be repealed to eliminate an old limited surplus line broker's license category.

Hearing Location(s): Insurance Commissioner's Office, Room TR 120, 5000 Capitol Boulevard, Tumwater, WA 98504-0255, on June 12, 2008, at 2:00.

Date of Intended Adoption: June 19, 2008.

Submit Written Comments to: Kacy Scott, P.O. Box 40258, Olympia, WA 98504-0258, e-mail, fax (360) 586-3109, by June 10, 2008.

Assistance for Persons with Disabilities: Contact Lorie Villaflores by June 10, 2008, TTY (360) 586-0241 or (360) 725-7087.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: These proposed rules will simplify requirements for surplus line brokers and more closely align this state's requirements for holding a surplus line broker's license with national standards.

Reasons Supporting Proposal: National standards for uniformity and reciprocity in personal qualification, education, training and experience of licensed insurance agents were enacted as part of the Gramm-Leach-Bliley Act (Public Law No. 106-102). These proposed rules are a result of that legislation.

Statutory Authority for Adoption: RCW 48.02.060, 48.15.040(4), 48.15.073(2), and 48.15.160(2).

Statute Being Implemented: RCW 48.15.070.

Rule is not necessitated by federal law, federal or state court decision.

Name of Proponent: Mike Kreidler, insurance commissioner, governmental.

Name of Agency Personnel Responsible for Drafting: Melodie Bankers, P.O. Box 40258, Olympia, WA 98504-0258, (360) 725-7039; Implementation: John Hamje, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7262; and Enforcement: Carol Sureau, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7050.

No small business economic impact statement has been prepared under chapter 19.85 RCW. After a review of RCW 19.85.025, it has been determined that a small business economic impact statement is not required for this rule making because these amendments: (1) Clarify current rules without changing their effect; (2) repeal a rule thereby eliminating an outdated license category; and (3) relate to process requirements and standards for applying for a surplus line broker's license.

A cost-benefit analysis is required under RCW 34.05.328. A preliminary cost-benefit analysis may be obtained by contacting Kacy Scott, P.O. Box 40258, Olympia, WA 98504-0258, phone (360) 725-7041, fax (360) 586-3535, e-mail

May 7, 2008

Mike Kreidler

Insurance Commissioner


AMENDATORY SECTION(Amending Order R 81-1, filed 1/21/81)

WAC 284-15-010   Brokers -- Surplus line -- Qualifications and examination.   (1) Each applicant for ((initial)) a resident surplus line broker's license ((as a surplus line broker shall, prior to issuance of any such license,)) must take and pass ((to the satisfaction of the commissioner an)) the required examination ((given by the commissioner. It shall be a test of his or her)) and pay the required fee prior to acting as a surplus line broker. The examination will test an applicant's qualifications and competence in all areas of surplus line insurance. ((The examination shall be given in the same manner and under the same conditions as are prescribed for brokers in chapter 48.17 RCW, except that such surplus line examination will generally be given twice each year at times set by the commissioner.

(2) Minimum requirements to be met by an applicant before he or she will be permitted to take the examination are:

(a) An applicant must have been licensed as a casualty-property broker in accordance with RCW 48.17.150 for not less than five years preceding the date of the application, or have received the chartered property casualty underwriter (CPCU) designation with not less than five years' experience in the insurance industry preceding the date of the application, or have not less than ten years' experience as an insurance company employee, or an employee of an insurance broker's office or other related insurance industry experience preceding the date of the application, or have other equivalent experience acceptable to the insurance commissioner.

(b) Such applicants shall complete application forms supplied by the commissioner.

(3) For the purpose of this regulation "applicant" and "surplus line broker" are defined to include any individual who is to be empowered and designated in the license as authorized to exercise the powers conferred thereby.

(4) The applicant, and each surplus line broker while so licensed, must be a resident of the state of Washington.)) Current information about testing procedures and examination dates is available on the commissioner's web site at:

(2) Before the commissioner can issue a surplus line broker's license, the applicant must be licensed in this state as an agent or broker with both property and casualty lines of authority. This requirement may be satisfied if the licenses are issued simultaneously.

(3) The commissioner deems that a nonresident person holding a surplus line broker's license, or the equivalent, in the applicant's home state is qualified, competent and trustworthy and, therefore, meets the minimum standards of this state for holding a surplus line broker's license. For that reason, the commissioner will waive the Washington surplus line broker's examination for a person who has and maintains a current resident surplus line broker's license, or the equivalent, in the applicant's home state.

[Statutory Authority: RCW 48.02.060. 81-03-082 (Order R 81-1), 284-15-010, filed 1/21/81.]

AMENDATORY SECTION(Amending Order R 81-1, filed 1/21/81)

WAC 284-15-020   Surplus line broker -- Solvent insurer required.   (1) A surplus line broker ((shall)) must not knowingly place surplus line insurance with financially unsound insurers. Foreign and alien insurers must meet or exceed the minimum financial conditions required by RCW 48.15.090 and WAC 284-15-090.

(2) A surplus line broker ((shall ascertain)) must substantiate the financial condition of ((the)) an unauthorized insurer ((and maintain written evidence thereof)) before placing insurance ((therewith)) with the insurer. The broker must also maintain evidence of the financial condition of the insurer for at least five years.

(a) ((When the)) If a surplus line broker ((uses)) places insurance with an alien unauthorized insurer shown on the National Association of Insurance Commissioners (NAIC) Quarterly Listing of Alien Insurers dated within three months ((of the)) after placement of the risk, it ((shall)) will be ((deemed)) presumed that the insurer meets the financial requirements of RCW 48.15.090 and WAC 284-15-090 and that ((its)) the financial condition of the insurer is adequately documented.

(b) ((When the)) If a surplus line broker ((uses)) places insurance with an alien unauthorized insurer that is not shown on the NAIC Quarterly Listing of Alien Insurers, ((there must be documentation in the broker's files demonstrating)) the broker must maintain information for at least five years adequate to show that the requirements of subsection (1) of this section ((are)) have been met or exceeded. This documentation shall include at least the following:

(i) A copy of the unauthorized insurer's most recent available annual financial statement((. This shall include an)), in English ((version)) with United States dollar equivalents; ((and))

(ii) Any other information obtained by the broker that verifies the financial condition of the alien ((company. (c))) unauthorized insurer; and

(iii) The ((surplus line broker must have at least the)) current NAIC annual statement or its equivalent on file for any ((foreign)) alien unauthorized insurer used.

[Statutory Authority: RCW 48.02.060. 81-03-082 (Order R 81-1), 284-15-020, filed 1/21/81.]

AMENDATORY SECTION(Amending Matter No. R 2006-04, filed 6/6/06, effective 7/7/06)

WAC 284-15-040   Form for surplus line insurer to designate person to receive legal process.   (1) RCW 48.15.150 permits service of legal process against an unauthorized insurer ((that is sued upon any cause of action arising in this state under any contract issued by it as a surplus line contract)) to be made upon the ((insurance)) commissioner. The commissioner will mail the documents of process to the insurer at its principal place of business last known to the commissioner, or to a person designated by the insurer for that purpose in the most recent document filed with the commissioner on a form prescribed by the commissioner. If ((such)) an unauthorized insurer elects to designate a person to receive ((such)) legal process from the commissioner, the designation ((shall be)) must be in writing and filed with the commissioner in substantially the form set forth ((in subsection (2) of this section)) on the commissioner's web site at:


To the Insurance Commissioner of the state of Washington:

Pursuant to RCW 48.15.150, the undersigned Insurer hereby designates:

Name . . . . . . . . . . . .

Address . . . . . . . . . . . .

. . . . . . . . . . . .

as the person to whom the Insurance Commissioner shall forward legal process against the Insurer. This designation supersedes any similar designation heretofore made by this Insurer.

Executed at . . . . . . . . , this . . . . day of . . . . . . . . , 20. . .
. . . . . . . . . . . .


By . . . . . . . . . . . .

. . . . . . . . . . . .


(3))) (2) The (("))person((")) designated by the insurer to receive legal process may be an individual, firm or corporation.

(((4))) (3) The ((commissioner shall forward)) process documents will be forwarded by the commissioner to the person designated in the most recent ((document)) notice filed with ((him)) the commissioner.

(((5) Pursuant to)) (4) As specified in RCW 48.15.150, each policy issued by an unauthorized insurer as a surplus line contract must ((contain a provision designating)) designate the commissioner as the person upon whom service of process may be made.

[Statutory Authority: RCW 48.02.060. 06-12-077 (Matter No. R 2006-04), 284-15-040, filed 6/6/06, effective 7/7/06; 81-03-082 (Order R 81-1), 284-15-040, filed 1/21/81.]

AMENDATORY SECTION(Amending Order R 89-2, filed 1/17/89)

WAC 284-15-050   Surplus line -- Waiver of financial requirements.   The commissioner may waive the financial requirements specified in RCW 48.15.090 and WAC 284-15-090 in circumstances where insurance cannot be otherwise procured on risks located in this state. Except as set forth in subsection (((6))) (5) of this section, at least the following information ((shall)) must be submitted when a surplus line broker ((makes a)) requests ((for)) the commissioner to waive the financial requirements:

(1) A detailed letter ((of explanation for)) explaining the need to waive the financial requirements;

(2) Documentation of the financial condition of the proposed insurer as reported in its annual statement as of the end of the preceding calendar year ((next preceding));

(3) Summary information showing the number of years the company has been writing the specific ((class)) line of insurance;

(4) ((The reinsurance agreements backing up the class of coverage or the company;

(5))) A written acknowledgement signed by the proposed insured ((to the effect that)) confirming all of the following:

(a) The insured ((is)) has been informed that the coverage ((is to)) will be issued by an insurer (or insurers) ((which)) that is not an authorized insurer in the state of Washington((,));

(b) The insured understands that financial requirements for surplus line insurers ((otherwise applicable have been)) must be waived by all parties concerned to enable this coverage to be obtained((,)); and

(c) The insured understands that there is no protection for the insured under the Washington Insurance Guaranty Association because the coverage will be issued by an unauthorized insurer;

(((6))) (5) For ((jumbo)) accounts requiring a multiplicity of insurers, in lieu of the requirements in subsections (2) and (3) of this section, the commissioner may((, in lieu of the requirements in subsections (2), (3), and (4) of this section,)) accept certification from ((an experienced)) a surplus line((s)) broker that the broker has investigated the financial condition of the prospective insurers and is satisfied that they are capable of underwriting the ((attendant)) specified risks. Records and documents supporting the broker's certification must be maintained by the broker for the ((life)) term of the policies and as long thereafter as a claim may be litigated, but in no case less than five years after completion of the transaction.

[Statutory Authority: RCW 48.02.060. 89-03-060 (Order R 89-2), 284-15-050, filed 1/17/89; 81-03-082 (Order R 81-1), 284-15-050, filed 1/21/81.]

AMENDATORY SECTION(Amending Order R 91-7, filed 11/13/91, effective 1/1/92)

WAC 284-15-080   Relationship between surplus line broker and insurance agent.   When a surplus line broker accepts surplus line business from an ((insurance)) agent, as permitted by RCW 48.15.080, ((such agent does not thereby)) acceptance of the business does not mean that the agent has become the representative of the insured with respect to ((such)) that business. In ((accord therewith)) this circumstance:

(1) Return premiums or claim payments ((delivered by the surplus line broker to the insurance agent shall)) will not be deemed to have been paid to the insured or claimant until ((such)) the payments are actually received by the insured or claimant.

(2) Delivery of notices involving the insurance, such as cancellation or renewal notices, ((shall)) will not be deemed to have been made until actually received by the insured. ((Notice to the agent is not notice to the insured. However, the agent may act on behalf of the broker in giving proper notices to the insured.))

[Statutory Authority: RCW 48.02.060, 48.05.310, 48.30.010 and 48.15.080. 91-23-032 (Order R 91-7), 284-15-080, filed 11/13/91, effective 1/1/92.]


     The following section of the Washington Administrative Code is repealed:
WAC 284-15-100 Surplus lines limited broker.

Washington State Code Reviser's Office