[§431C-49] Injunctions; civil remedies; cease and desist. (a) In addition to the penalties and other enforcement provisions of this chapter, if any person violates this chapter or any rule implementing this chapter, the commissioner may seek an injunction in a court of competent jurisdiction in the county in which the person resides or has a principal place of business and may apply for temporary and permanent orders that the commissioner determines necessary to restrain the person from further committing the violation.
(b) Any person damaged by the acts of another person in violation of this chapter or any rule implementing this chapter, may bring a civil action for damages against the person committing the violation in a court of competent jurisdiction.
(c) The commissioner may issue a cease and desist order upon a person who violates any provision of this chapter, any rule or order adopted by the commissioner, or any written agreement entered into with the commissioner, in accordance with chapter 91.
(d) When the commissioner finds that such an action presents an immediate danger to the public and requires an immediate final order, the commissioner may issue an emergency cease and desist order reciting with particularity the facts underlying such findings. The emergency cease and desist order shall be effective immediately upon service of a copy of the order on the respondent and shall remain effective for ninety days. If the commissioner begins non-emergency cease and desist proceedings under subsection (a), the emergency cease and desist order shall remain effective, absent an order by an appellate court of competent jurisdiction pursuant to chapter 91. In the event of a wilful violation of this chapter, the trial court may award statutory damages in addition to actual damages in an additional amount up to three times the actual damage award. The provisions of this chapter may not be waived by agreement. No choice of law provision may be used to prevent the application of this chapter to any life settlement contract in which a party to the settlement is a resident of this State. [L 2012, c 256, pt of §1]
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[§431C-50] Penalties. (a) The commissioner may levy a civil penalty not exceeding $10,000 and the amount of the claim for each violation upon any person, including those persons and their employees licensed pursuant to this chapter, who is found to have committed a fraudulent life settlement act or violated any other provision of this chapter.
(b) The license of a person licensed under this chapter who commits a fraudulent life settlement act shall be revoked for a period of at least one year.
(c) The penalties under this chapter are cumulative and may be imposed in addition to any other penalties authorized by law. [L 2012, c 256, pt of §1]
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[§431C-51] Unfair trade practices. A violation of this chapter shall be considered an unfair trade practice pursuant to section 480-2 and subject to the penalties under chapter 480. [L 2012, c 256, pt of §1]
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[§431C-52] Conflict of laws. (a) If there is more than one owner of a single policy, and the owners are residents of different states, the life settlement contract shall be governed by the law of the state in which the owner having the largest percentage ownership resides or, if the owners hold equal ownership, the state of residence of one owner agreed upon in writing by all of the owners. The law of the state of the insured shall govern in the event that equal owners fail to agree in writing upon a state of residence for jurisdictional purposes.
(b) A provider from this State who enters into a life settlement contract with an owner who is a resident of another state that has enacted statutes or adopted regulations governing life settlement contracts, shall be governed in the effectuation of that life settlement contract by the statutes and regulations of the owner's state of residence. If the state in which the owner is a resident has not enacted statutes or regulations governing life settlement contracts, the provider shall give the owner notice that neither that state nor this State regulates the transaction upon which the owner is entering. For transactions in those states, however, the provider shall maintain all records required if the transactions were executed in the state of residence. The forms used in those states need not be approved by the insurance division.
(c) If there is a conflict in the laws that apply to an owner and a purchaser in any individual transaction, the laws of the state that apply to the owner shall take precedence and the provider shall comply with those laws. [L 2012, c 256, pt of §1]
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[§431C-53] Authority to adopt rules. The commissioner may adopt rules to implement this chapter pursuant to chapter 91. [L 2012, c 256, pt of §1]
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CHAPTER 431D
INSURANCE COMPANY INSOLVENCY
REPEALED. L 1987, c 347, §1.
Cross References
For present provisions, see chapter 431, article 16, part I and §§431:2-304, 431:15-324.
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CHAPTER 431E
LIFE SETTLEMENTS
REPEALED. L 2008, c 177, §7.
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CHAPTER 431F
HAWAII LIFE AND DISABILITY INSURANCE GUARANTY
ASSOCIATION ACT
REPEALED. L 1987, c 347, §1.
Cross References
For present provisions, see chapter 431, article 16, part II and §431:2-304.
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CHAPTER 431H
INSURANCE INFORMATION PROTECTION ACT
REPEALED. L 1987, c 347, §1.
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CHAPTER 431J
CAPTIVE INSURANCE COMPANIES
REPEALED. L 1987, c 347, §1.
Cross References
For present provisions, see chapter 431, article 19.
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CHAPTER 431K
RISK RETENTION
Section
431K-1 Definitions
431K-1.5 Financial responsibility
431K-2 Risk retention groups chartered in this State
431K-3 Risk retention groups not chartered in this State
431K-3.5 Registration fees and service fees of risk
retention groups not chartered in this State
431K-4 Compulsory associations
431K-5 Repealed
431K-6 Purchasing groups; exemption from certain laws
relating to the group purchase of insurance
431K-7 Notice and registration requirements of
purchasing groups
431K-7.1 Registration fees and service fees of purchasing
groups
431K-7.5 Purchasing group taxation
431K-8 Restrictions on insurance purchased by
purchasing groups
431K-9 Administrative and procedural authority regarding
risk retention groups and purchasing groups
431K-10 Penalties
431K-11 Duty of producer to obtain license and to keep
records
431K-12 Binding effect of orders issued in United States
District Court
431K-13 Rules
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§431K-1 Definitions. As used in this chapter:
"Board of directors" or "board" means the governing body of the risk retention group elected by the shareholders or members to establish policy, elect or appoint officers and committees, and make other governing decisions.
"Commissioner" means the insurance commissioner of this State.
"Completed operations liability" means liability arising out of the installation, maintenance, or repair of any product at a site which is not owned or controlled by any person who:
(1) Performs that work; or
(2) Hires an independent contractor to perform that work; but shall include liability for activities which are completed or abandoned before the date of the occurrence giving rise to the liability.
"Director" means a natural person designated in the articles of the risk retention group or designated, elected, or appointed by any other manner, name, or title to act as a director.
"Domicile", for purposes of determining the state in which a purchasing group is domiciled, means:
(1) For a corporation, the state in which the purchasing group is incorporated; or
(2) For an unincorporated entity, the state of its principal place of business.
"Financially impaired" means that a risk retention group:
(1) Has admitted assets that are less than the sum of its aggregate liabilities and the amount of surplus to policyholders required to be maintained by a risk retention group chartered in this State and authorized to do the same kind or kinds of insurance; or
(2) Has admitted assets that are less than the sum of its aggregate liabilities and outstanding capital stock; or
(3) Is insolvent.
"Hazardous financial condition" means that, based on its present or reasonably anticipated financial condition, a risk retention group, although not yet financially impaired or insolvent, is unlikely to be able to:
(1) Meet obligations to policyholders with respect to known claims and reasonably anticipated claims; or
(2) Pay other obligations in the normal course of business.
"Insolvent" means that a risk retention group has admitted assets that are less than the aggregate amount of its liabilities.
"Insurance" means primary insurance, excess insurance, reinsurance, surplus lines insurance, and any other arrangement for shifting and distributing risk which is determined to be insurance under the laws of this State.
"Liability" means legal liability for damages, including costs of defense, legal costs and fees, and other claims expenses because of injuries to other persons, damage to their property, or other damage or loss to those other persons resulting from or arising out of:
(1) Any business, whether for profit or nonprofit, trade, product, services, including professional services, premises, or operations; or
(2) Any activity of any state or county government, or any agency or political subdivision;
but does not include personal risk liability and an employer's liability with respect to its employees other than legal liability under the Federal Employers' Liability Act, 45 U.S.C. §51 et seq.
"Personal risk liability" means liability for damages because of injury to any person, damage to property, or other loss or damage resulting from any personal, familial, or household responsibilities or activities, rather than from responsibilities or activities referred to in paragraphs (1) and (2) in the definition of "liability".
"Plan of operation" or "feasibility study" means an analysis which presents the expected activities and results of a risk retention group including, not less than the following:
(1) The coverages, deductibles, coverage limits, rates, and rating classification systems for each line of insurance the group intends to offer;
(2) Historical and expected loss experience of the proposed members and national experience of similar exposures to the extent that this experience is reasonably available;
(3) Pro forma financial statements and projections;
(4) Appropriate opinions by a qualified, independent casualty actuary, including a determination of minimum premiums or participation levels required to commence operations and to prevent a hazardous financial condition;
(5) Identification of management, underwriting procedures, managerial oversight methods, investment policies;
(6) Identification of each state in which the risk retention group has obtained, or sought to obtain, a charter and license, and a description of its status in each state; and
(7) Other matters as may be prescribed by the commissioner for liability insurance companies authorized by the insurance laws of the state in which the risk retention group is chartered.
"Product liability" means liability for damages because of any personal injury, death, emotional harm, consequential economic damage, or property damage, including damages resulting from the loss of use of property, arising out of the manufacture, design, importation, distribution, packaging, labeling, lease, or sale of a product, but does not include the liability of any person for those damages if the product involved was in the possession of the person when the incident giving rise to the claim occurred.
"Purchasing group" means any group which:
(1) Has as one of its purposes the purchase of liability insurance on a group basis;
(2) Purchases this insurance only for its group members and only to cover their similar or related liability exposure, as described in [paragraph (3)];
(3) Is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and
(4) Is domiciled in any state.
"Risk retention group" means any corporation or other limited liability association formed under the laws of any state, Bermuda, or the Cayman Islands:
(1) Whose primary activity consists of assuming and spreading all, or any portion, of the liability exposure of its group members;
(2) Which is organized for the primary purpose of conducting the activity described under paragraph (1);
(3) Which:
(A) Is chartered and licensed as a liability insurance company and authorized to engage in the business of insurance under the laws of any state; or
(B) Before January 1, 1985, was chartered or licensed and authorized to engage in the business of insurance under the laws of Bermuda or the Cayman Islands and, before this date, had certified to the insurance commissioner of at least one state that it satisfied the capitalization requirements of that state, except that any group shall be considered to be a risk retention group only if the group has been engaged in business continuously since this date and only for the purpose of continuing to provide insurance to cover product liability or completed operations liability, as defined in the Product Liability Risk Retention Act of 1981, 15 U.S.C. §3901 et seq., before the date of the enactment of the Liability Risk Retention Act of 1986, P.L. 99-563;
(4) Which does not exclude any person from membership in the group solely to provide for members of the group a competitive advantage over the person;
(5) Which has as its:
(A) Members only persons who have an ownership interest in the group and that has as its owners only persons who are members who are provided insurance by the risk retention group; or
(B) Sole member and sole owner an organization that is owned by persons who are provided insurance by the risk retention group;
(6) Whose members are engaged in business or activities similar or related to the liability of which these members are exposed by virtue of any related, similar, or common business trade, product, services, premises, or operations;
(7) Whose activities do not include the provision of insurance other than:
(A) Liability insurance for assuming and spreading all or any portion of the liability for its group members; and
(B) Reinsurance with respect to the liability of any other risk retention group, or any members of another group, which is engaged in businesses or activities so that this group or member meets the requirement described in paragraph (6) for membership in the risk retention group that provides this reinsurance; and
(8) The name of which includes the phrase "risk retention group".
"State" means any state of the United States or the District of Columbia. [L 1987, c 180, pt of §1; am L 1989, c 272, §§2, 3; am L 1997, c 368, §8; am L 2004, c 122, §80; am L 2016, c 140, §3]
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[§431K-1.5] Financial responsibility. Whenever pursuant to the laws of this State or any county of this State a demonstration of financial responsibility is required as a condition for obtaining a license or permit to undertake specified activities, if any such requirement may not be satisfied by obtaining insurance from an insurance company not authorized in this State, then such requirement may not be satisfied by purchasing insurance from a risk retention group not chartered in this State. [L 1989, c 272, §1]
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§431K-2 Risk retention groups chartered in this State. (a) A risk retention group seeking to be chartered in this State shall be chartered and licensed as a liability insurance company authorized by the insurance laws of this State and, except as provided elsewhere in this chapter, shall comply with all of the laws, rules, and requirements applicable to these insurers chartered and licensed in this State and with section 431K-3, to the extent these requirements are not a limitation on the laws, rules, or requirements of this State. Prior to offering insurance in any state, each risk retention group shall also submit for approval to the commissioner a plan of operation or feasibility study and revisions of such plan or study if the group intends to offer any additional lines of liability insurance. Immediately upon receipt of an application for charter, the commissioner shall provide summary information concerning the filing to the National Association of Insurance Commissioners, including:
(1) The name of the risk retention group;
(2) The identity of the initial members of the group;
(3) The identity of those individuals who organized the group or who will provide administrative services or otherwise influence or control the activities of the group;
(4) The amount and nature of initial capitalization;
(5) The coverages to be afforded; and
(6) The states in which the group intends to operate.
Providing notification to the National Association of Insurance Commissioners is in addition to and shall not be sufficient to satisfy the requirements of section 431K-3 or any other sections of this chapter.
(b) New risk retention groups established on or after July 1, 2016, shall be in compliance with the governance standards set forth in subsection (c).
(c) By July 1, 2017, existing risk retention groups shall be in compliance with the following:
(1) The board shall have a majority of independent directors. The board of directors shall: determine whether a director is independent and has no material relationship with the risk retention group; review such determination annually; and maintain a record of the determinations, which shall be provided to the commissioner annually. If the risk retention group is reciprocal, then the attorney-in-fact shall be required to adhere to the same standards regarding independence of operation and governance as imposed on the risk retention group's board of directors and subscribers advisory committee[;]
(2) The term of any material service provider contract entered into with a risk retention group shall not exceed five years. The contract or its renewal requires approval of a majority of the risk retention group's independent directors. The board of directors has the right to terminate a contract at any time for cause after providing adequate notice as defined in the terms of the contract. Service providers of a reciprocal risk retention group shall contract with the risk retention group[;]
(3) A risk retention group shall not enter into a material service provider contract without the prior written approval of the commissioner[;]
(4) A risk retention group's plan of operation shall include written policies approved by its board of directors requiring the board to:
(A) Provide evidence of ownership interest to each risk retention group member;
(B) Develop governance standards applicable to the risk retention group;
(C) Oversee the evaluation of the risk retention group's management, including the performance of its captive manager, managing general underwriter, or any other person responsible for underwriting, rate determination, premium collection, claims adjustment and settlement, or preparation of financial statements;
(D) Review and approve the amount to be paid under a material service provider contract; and
(E) Review and approve at least annually:
(i) The risk retention group's goals and objectives relevant to the compensation of officers and service providers;
(ii) The performance of officers and service providers as measured against the risk retention group's goals and objectives; and
(iii) The continued engagement of officers and material service providers[;]
(5) A risk retention group shall have an audit committee composed of at least three independent board members. A nonindependent board member may participate in the committee's activities if invited to do so by the audit committee, but a nonindependent board member shall not serve as a committee member. The commissioner may waive the requirement of an audit committee if the risk retention group demonstrates to the commissioner's satisfaction that having such committee is impracticable and that the board of directors itself is able to sufficiently perform the committee's responsibilities. The audit committee shall have a written charter defining its responsibilities, which shall include:
(A) Assisting board oversight of the integrity of financial statements, compliance with legal and regulatory requirements, and qualifications, independence, and performance of the independent auditor or actuary;
(B) Reviewing annual audited financial statements and quarterly financial statements with management;
(C) Reviewing annual audited financial statements with its independent auditor and, if deemed advisable, the risk retention group's quarterly financial statements;
(D) Reviewing risk assessment and risk management policies;
(E) Meeting with management, either directly or through a designated representative of the committee;
(F) Meeting with independent auditors, either directly or through a designated representative of the committee;
(G) Reviewing with the independent auditor any audit problems and management's response;
(H) Establishing clear hiring policies applicable to the hiring of employees or former employees of the independent auditor by the risk retention group;
(I) Requiring the independent auditor to rotate the lead audit partner having primary responsibility for the risk retention group's audit, as well as the audit partner responsible for reviewing that audit, so that neither individual performs audit services for the risk retention group for more than five consecutive fiscal years; and
(J) Reporting regularly to the board of directors[;]
(6) The board of directors shall adopt governance standards, which shall be available to risk retention group members through electronic or other means and, upon request, provided to risk retention group members. The governance standards shall include:
(A) A process by which risk retention group members elect directors;
(B) Director qualifications, responsibilities, and compensation;
(C) Director orientation and continuing education requirements;
(D) A process allowing the board access to management and, as necessary and appropriate, independent advisors;
(E) Policies and procedures for management succession; and
(F) Policies and procedures providing for an annual performance evaluation of the board[;]
(7) The board of directors shall adopt a code of business conduct and ethics applicable to directors, officers, and employees of the risk retention group and disclose criteria for waivers of code provisions to the board of directors, which shall be available to risk retention group members through electronic or other means and, upon request, provided to risk retention group members. Provisions of the code shall address:
(A) Conflicts of interest;
(B) Matters covered under the Hawaii corporate opportunities doctrine;
(C) Confidentiality;
(D) Fair dealing;
(E) Protection and proper use of risk retention group assets;
(F) Standards for complying with applicable laws, rules, and regulations; and
(G) Mandatory reporting of illegal or unethical behavior affecting the operation of the risk retention group[;]
(8) The captive manager, president, or chief executive officer of a risk retention group shall promptly notify the commissioner in writing of any known noncompliance with the governance standards established in this subsection.
(d) For the purposes of this section:
"Independent director" means a director who does not have a material relationship with the risk retention group. A person who is a direct or an indirect owner of or subscriber in the risk retention group, as referenced in the definition of "risk retention group" in section 431K-1, or who is an officer, a director, or an employee of the owner and insured unless some other position of the officer, director, or employee constitutes a "material relationship", is considered independent. The commissioner shall have the authority to determine whether or not a director is independent.
A director has a "material relationship" with a risk retention group if the director or a member of the director's immediate family:
(1) Receives in any twelve-month period from the risk retention group or a consultant or service provider to the risk retention group compensation or other item of value in an amount equal to or greater than five per cent of the risk retention group's gross written premium or two per cent of the risk retention group's surplus as measured at the end of any fiscal quarter falling in the twelve-month period, whichever is greater. This provision also applies to compensation or items of value received by any business with which the director or a member of the director's immediate family is affiliated. The material relationship shall be deemed to exist for one year after the item of value is received or the compensation ceases or falls below the threshold established in this paragraph, as applicable;
(2) Is affiliated with or employed in a professional capacity by a current or former internal or external auditor of the risk retention group. The material relationship shall be deemed to exist for one year after the affiliation, employment, or audit ends; or
(3) Is employed as an executive officer of another company whose board of directors includes executive officers of the risk retention group unless a majority of the membership of the other company's board of directors is the same as the membership of the board of directors of the risk retention group. The material relationship shall be deemed to exist for one year after the employment or service ends.
"Material service provider" includes a captive manager, auditor, accountant, actuary, investment advisor, attorney, managing general underwriter, or other person responsible for underwriting, determination of rates, premium collection, claims adjustment or settlement, or preparation of financial statements, whose aggregate annual contract fees are equal to or greater than five per cent of the risk retention group's annual gross written premium or two per cent of its surplus, whichever is greater. "Material service provider" does not mean defense counsel retained by a risk retention group unless the counsel's annual fees are equal to or greater than five per cent of a risk retention group's annual gross written premium or two per cent of its surplus, whichever is greater. [L 1987, c 180, pt of §1; am L 2016, c 140, §4]