Insurance laws of the State of Georgia, 1969

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INSURANCE LAWS OF

THE STATE OF GEORGIA

Including All Insurance Laws Enacted Up to And Including the 1969 Session of the General Assembly of Georgia
Received
JAN U~ .1987
DOCUMENTS UGA LIBRARIES
Johnnie L. Caldwell
Comptroller Genera.l Room 241 State Capitol Atlanta, Georgia 30334
Comptroller General and Insurance Commi11ioner
State Capitol, Atlanta, Georgia

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INSURANCE LAWS OF THE STATE OF GEORGIA
Including All Insurance Laws Enacted Up to And Including the 1969 Session of the General Assembly of Georgia
JAMES L. BENTLEY Comptroller General and Insurance Commissioner
State Capitol, Atlanta, Georgia

G EORGIA I Ns U RA NCE C onE O F 1960
GEORGIA INSURANCE CODE OF 1960.
Code Title 56 Amend ed.
No . 589 (House Bill No. 115).
An Act to revise, classify, consolidate, and supersede the present laws relating to insurance and to establishing new laws relating thereto; to provide for imposition of licenses, fees and taxes and the disposition thereof; to provide for the supervision and regulation of the insurance business within or relating to this State; to provide a new Insurance Code composed as follows: Chapter 56-1, scope of title and citation of Act, including definitions and the application of the Act to particular types of insurers and for the effective date of the Act; Chapter 56-2, the insurance department, providing for the establishment of the insurance department, the officers thereof, its procedure, etc.; Chapter 56-3, authorization of insurers and general requirements for doing business in this State, providing for definitions, the requirements for transacting insurance business in this State and the authorization of insurers needed for such transactions; Chapter 56-4, kinds of insurance ; reinsurance ; limits of risk, defining the kinds of insurance, limits of risk and authorized reinsurance; Chapter 56-5A, rates-casualty, surety and vehicle insurance, providing the procedure for making and revising of rates applicable to such insurance, the examination of insurers, and hearings relative thereto; Chapter 56-5B, rates-property, marine, and transportation, providing the procedure for making and revising rates applicable to such insurance, the examination of insurers, and hearings relative thereto; Chapter 56-6, unauthorized insurers and unauthorized insurers process Act, forbidding the representation of unauthorized insurers, establishing the manner of service upon unauthorized insurers, establishing a surplus line insurance law, the licensing of brokers, for such, imposing a tax upon them, and providing penalties; Chapter 56-7, unfair trade practices, defining unfair methods of com-

GEoRGIA INsURANCE ConE OF 1960

2

petition, unfair and deceptive acts or practices, giving the commissioner authority relative thereto and providing penalties for such unfair trade practices; Chapter 56-8A, agents and counselors-life, accident and sickness, providing for the licensing of such, examination of applicants, the grounds for refusal, suspension or revocation of licenses, and hearing relating thereto; Chapter 56-8B, agents, solicitors, brokers, counselors and adjusters-property, casualty, surety and allied lines, providing for the licensing of such, examination of applicants, the grounds for refusal, suspension or revocation of licenses, and hearing relating thereto; Chapter 56-9, assets and liabilities, providing for the definition of assets allowable or not allowed, unearned premium reserves for classes of insurance, for the increase of inadequate reserves, a standard valuation law, and the valuation of certain assets; Chapter 56~10, investments, establishing general qualifications for eligible investments, diversification of investments, defining the types of investments and restrictions relative thereto, and procedure for the disposal of ineligible investments; Chapter 56-11, administration of deposits, defining assets eligible for deposit, the procedure as to excess, deficiency, or release of deposits, levy against same, receiverships, notice of claims against deposits and the withdrawal of deposits; Chapter 56-12, actions against insurance companies, establishing the venue of such actions, the method of service of process and liability of insurers for damages and attorney's fees; Chapter 56-13, fees and taxes, establishing license fees, miscellaneous charges, imposing a tax upon gross direct insurance premiums, the time for payment thereof, the reduction of taxes, license fees of insurers, the disposition thereof and the procedure for collecting; Chapter 56-14, rehabilitation and liquidation of insurers, providing for the conduct of delinquency proceedings against insurers, the filing, proving and priority of claims, establishing the uniform insurers act, the grounds for rehabilitation, conservation and liquidation of insurers, and the authority of the commissioner relating thereto, the filing and allowance of claims, assessments and procedure to collect the same; Chapter

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GEoRGIA INsuRANCE CooE oF 1960

56-15, domestic stock and mutual insurers: organization and corporate procedures, providing for the incorporation of domestic stock and mutual insurers, the method of formation thereof, their corporate procedures, the requirements of doing business, consolidation, the merger or dissolution of domestic insurers and the rights of creditors, members and stockholders; Chapter 56-17, hospital service nonprofit corporations, providing for the establishment of such, the limits of their authority to contract and operate, supervision of their rates by the commissioner, their examination and dissolution; Chapter 56-18, nonprofit medical service corporations, providing for the establishment of such, the limits of their authority to contract and operate, supervision of their rates by the commissioner, their examination and dissolution; Chapter 56-19, fraternal benefit societies, providing for the establishment of such, the limits of their authority to contract and operate, their examination and dissolution, licensing or exemption of their agents, imposing license fees and taxes, requirements for investments, and examination of such societies; Chapter 56-20, farmers' mutual fire insurance companies, providing for the establishment of such, issuance of certificate of authority, the fees for doing business, their corporate procedures, examination by the commissioner, and other provisions of the Georgia insurance code applicable thereto; Chapter 56-21, reciprocal insurers, providing for the definition of reciprocal insurance and insurers, their powers, method of organization and certificate of authority, their regulation by the commissioner, subscribers' liability, assessment, distribution of profits, merger, conversion, and dissolution; Chapter 56-24, the insurance contract in general, defining certain terms, requiring an insurable interest, providing for the filing, approval
or disapproval of forms, the issuance, construction and delivery of policies, the renewal thereof, the method for discharge of liability, cancellation of policies, empowering governmental units to enter into agreements for insurance for certain types of insurance, and providing for guaranteed arrest bond certificates; Chapter 56-25, life insurance, defining contracts of life insur-

GEoRGIA INsURANCE CoDE oF 1960

4

ance, requiring standard provisions therefor, prohibiting certain provisions, exemption of proceeds from creditors and defining the scope of incontestability; Chapter 56-26, annuities and pure endowment contracts, defining the same, establishing standard provisions, exemption of proceeds from creditors, and the scope of the incontestable clause; Chapter 56-27, group life insurance, establishing eligible groups, limiting the amounts of such insurance, providing for dependent coverage, establishing required provisions, providing conversion privileges and exemption of proceeds from creditors; Chapter 56-29, industrial life insurance, defining the same, establishing required and optional policy provisions, regulating disability benefits and exemption of the proceeds from creditors; Chapter 56-30, individual accident and sickness insurance, defining the same, establishing required and optional policy provisions, the renewal of such insurance, regulating the same, exemption of proceeds from creditors, and defining franchise accident and sickness insurance; Chapter 56-31, group and blanket accident and sickness insurance, defining the same, and the groups eligible, establishing required provisions, requiring insurable interest, and exemption of proceeds from creditors; Chapter 56-32, property insurance, requiring a standard fire policy, allowing insurance on changing property, regulating the privilege of rebuilding or reinstating the property, and regulating payments less than the policy amount; Chapter 56-33, credit life insurance and credit accident and sickness insurance, defining the same, regulating the issuance thereof, establishing required provisions, requiring the approval of premiums, etc. ; Chapter 56-99, crimes, requiring insurance to be payable in legal tender, prohibiting insurer's contracts as to funerals, or with undertakers, or as to funeral merchandise, or services, forbidding insurer receiving commissions from undertakers, forbidding false representation as to policies sold, providing penalties for policies issued in violation of the law, punishing false statements by officers, agents, etc., providing penalties of violation of Chapter 56-29, for fraudulent insurance claims, for representing unauthorized insurance com-

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Sc o PE o r TITLE AND C ITATIO N or A c T

56-103

panies, and providing the penalty for violation by attorney of Chapter 56-21; to provide specific repeal of certain code sections and statutes; to repeal conflicting laws; and for other purposes.
Be it enacted by the General Assembly of Georgia and it is hereby enacted by authority of same:
Section 1. The following shall constitute the Georgia Insurance Code:
CHAPTER 56-1
SCOPE OF TITLE AND CITATION OF ACT.
56-101. Insurance Code. 56-102. "Insurance" defined. 56-103. "Insurer" defined. 56-104. "Person" defined. 56-105. "Transacting" insurance. 56-106. "Insurance Commissioner" defined. 56-107. "Insurance Department" defined. 56-108. Application as to particular types of insurers. 56-109. Compliance. 56-110. Existing forms and filings. 56-111. Existing actions and violations. 56-112. Existing licenses and certificates of authority. 56-113. Particular provisions prevail. 56-114. Severability. 56-115. Effective date.
56-101. Insurance Code.-This Title constitutes the Georgia Insurance Code.
56-102. "Insurance" defined.-"Insurance" is a contract which is an integral part of a plan for distributing individual losses whereby one undertakes to indemnify another or to pay a specified amount or benefits upon determinable contingencies.
56-103. "Insurer" defined.-"Insurer" includes every person engaged as indemnitor, surety or contractor who

56-104

ScoPE oF TITLE AND CITATION oF AcT

6

issues contracts of insurance. Hospital service nonprofit corporations and/or nonprofit medical service corporations and burial associations are insurers within the meaning of this Title.
56-104. "Person" defined.-"Person" as used in this Title includes an individual, insurer, company, association, trade association, organization, society, reciprocal or inter-insurance exchange, partnership, syndicate, business trust, corporation, Lloyds association, and association, groups or department of underwriters, and any other legal entity.
56-105. "Transacting" insurance.-"Transact" with respect to insurance includes any of the following:
(1) Solicitation and inducement.
(2) Preliminary negotiations.
(3) Effectuation of a contract of insurance.
(4) Transaction of matters subsequent to effectuation of the contract and arising out of it.
56-106. "Insurance Commissioner" defined.-When used in this Title, "Insurance Commissioner" or "Commissioner" means the Insurance Commissioner of the State of Georgia.
56-107. "Insurance Department" defined. - When used in this Title, "Insurance Department'.' or "Department" means the Insurance Department established by section 56-201.
56-108. Application as to particular types of insurers.-This Title shall not apply to:
(1) Hospital service nonprofit corporations except as provided in Chapter 56-17 and nonprofit medical service corporations except as provided in Chapter 56-18;
(2) Fraternal benefit societies except as provided in Chapter 56-19;

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ScoPE oF TITLE AND CITATION oF AcT

56-112

(3) Farmers' mutual fire insurance companies except as provided in Chapter 56-20.
56-109. Compliance.-No person shall act as an insurer as defined in section 56-103 in this State without complying with the applicable provisions of this Title.
56-110. Existing forms and filings.-Every form of insurance document and every rate or other filing lawfully in use immediately prior to the effective date of this Act, may continue to be so used or be effective until the Commissioner otherwise prescribes in accordance with this Title; except that before the expiration of one year from and after such effective date neither this Title nor the Commissioner shall prohibit the use of any such document, rate or filing because of anypower, prohibition or requirement contained in this Title which did not exist under laws in force immediately prior to such effective date.

56-111. Existing actions and violations.-Repeal by this Act of any law shall not affect or abate any right accrued, action or proceeding commenced, or any unlawful act committed under such laws and punishment or deprivation of license or authority as a consequence thereof as provided by such laws, but all proceedings hereafter taken with respect thereto shall conform to the applicable provisions of this Title insofar as possible. All such laws shall be deemed to continue in force to the extent made necessary by this provision.

56-112. Existing licenses and certificates of authority. -The expiration dates of certificates of authority and licenses in force immediately prior to the effective date of this Act and lawfully existing under any law repealed by this Act, are hereby extended as follows:
(1) Licenses or certificates of authority of insurers shall expire on June 30th next succeeding such effective date; Provided, however, that any certificate of authority shall continue in full force and effect until the new cer-

56-113

THE INS U RANCE DEPARTMENT

8

tificate be issued or specifically refused; however, such continuance shall not exceed a period of six months.

(2) Licenses or certificates of authority of agents, brokers, solicitors, counselors, and adjusters shall expire on the dates provided in this Title or in accordance with rules and regulations promulgated by the Commissioner pursuant to the provisions of this Title.

Any such license or certificate m~y be renewed, and shall be subject to suspension or revocation, as though originally issued under this Title.

56-113. Particular provisions prevaii.-Provisions of this Title relating to a particular kind of insurance or a particular type of insurer or to a particular matter prevail over provisions relating to insurance in general or insurers in general.

56-114. Severability.-If any section or provisiOn of this Title or the application of such section or provision to any person or circumstance is held invalid, the remainder of the Title, or the application of the section or provision to other circumstances shall not be affected thereby.

56-115. Effective date.-The provisions of this Act, except as otherwise expressly provided herein, shall become effective January 1, 1961.

CHAPTER 56-2

THE INSURANCE DEPARTMENT

56-201. 56-202. 56-203. 56-204. 56-205. 56-206. 56-207. 56-208.

The Insurance Department. Seal. Records. Annual report. Organization of the department. Chief Deputy Insurance Commissioner. Appointment of assistants. Examinations.

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TuE INSURANCE DEPARTME N T

56-202

56-209. Examinations of agents, solicitors, brokers, counselors, adjusters, managers and promoters.
56-210. Access to records; correction of accounts. 56-211. Examination reports. 56-212. Expense of examination. 56-213. Delegation of authority. 56-214. Enforcement. 56-215. Witnesses and evidence. 56-216. Rules and regulations. 56-217. Orders, notices. 56-218. Hearings. 56-219. Place of hearings. 56-220. Notice of hearings. 56-221. Show cause notice. 56-222. Conduct of hearings. 56-223. Adjourned hearings; nonattendance. 56-224. Order on hearing. 56-225. Judicial review; parties. 56-226. Judicial review; pleading and procedure. 56-227. Judicial review; scope of review; trial de novo;
exceptions. 56-228. Collection and disposition of fees and taxes. 56-229. Limitation.
56-201. Insurance Department.-There shall be in the office of the Comptroller General a depa1tment which shall be called the Insurance Department of the State of Georgia. The chief officer of such Department shall be the Comptroller General who shall be styled the "Insurance Commissioner". The purpose and function of the Department and the duties and powers of the Commissioner shall be those created and vested by the provisions of this Title. Suitable rooms, located at the State Capital, which are conveniently accessible to the general public, shall be assigned to the Insurance Department.
56-202. Seal.-The Commissioner shall have an official seal of such device as he shall, with the approval of the Governor, select. Every certificate and other document or paper executed by the Commissioner in the pursuance of any authority conferred upon him by law, and sealed with the seal of his office, and all copies or photo-

56-203

TH E INS U RAN CE D E PART ME NT

10

graphic copies of papers certified by him and authenticated by said seal, shall in all cases be evidence equally and in like manner as the original thereof and shall in all cases be primary evidence of the contents of the original and shall be admissible in any court in this State.
56-203. Records.- (1) The Commissioner shall enter in permanent form records of the official transactions, filings, examinations, investigations and proceedings of his office and shall keep all records, books and papers pertaining thereto in his office. Such records, books and papers shall be deemed public records of the State except as may be provided otherwise herein.
(2) Upon the request of any person and the payment of the applicable fee, the Commissioner shall supply a certified copy of any record in his office which is then subject to public inspection.
(3) The Commissioner may destroy or otherwise dispose of all records entered in his office in accordance with the rules and procedures provided for in Chapter 40-8 of this Code: Provided, however, that filings may be destroyed by direction of the Commissioner when superceded.
56-204. Annual report.-As early in the calendar year as reasonably possible the Commissioner annually shall prepare and deliver a report to the Governor and the members of the General Assembly showing, with respect to the preceding calendar year:
(1) Names of the authorized insurers transacting insurance in this State, with such summary of their financial statement as he deems proper;
(2) Names of insurers whose business were closed during the year, the cause thereof, and amount of assets and liabilities as ascertainable;
(3) Names of insurers against which delinquency or similar proceedings were instituted, and a concise statement of the facts with respect to each proceeding:

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T HE I NSU RA NCE D E PARTM E N T

56-207

(4) The receipts and expenses of the Department for the year;
(5) Recommendations of the Commissioner as to amendments or supplementation of laws affecting insurance, as to matters affecting the Department; and
(6) Such other pertinent information and matters as the Commissioner deems proper.

56-205. Organization of the department.-The Commissioner shall set up within the Department such divisions or sections as he may deem necessary for the appropriate performance of the duties of the Department and the proper exercise of the powers vested therein. Such organization shall proceed along functional lines, and shall have as its purpose efficiency in operation and service to the public.

56-206. Chief Deputy Insurance Commissioner.-(!) The Commissioner shall appoint a Chief Deputy Insurance Commissioner and he may appoint such other deputies as may be necessary to assist him in the performance and discharge of his duties and in the event of a vacancy in the office of the Commissioner, or in his absence or disability for any reason, the Chief Deputy shall perform all the duties of the Commissioner. The Chief Deputy shall execute a bond with proper security in the sum of fifteen thousand ($15,000) dollars, such bond to be approved by the Commissioner and conditioned upon the faithful performance of the duties of the Chief Deputy Commissioner.
(2) The Chief Deputy Insurance Commissioner and other deputies shall be removable at the pleasure of the Commissioner.

56-207. Appointment of assistants.- ( 1) The Commissioner may appoint and prescribe the duties of such assistants, examiners, actuaries, clerks and employees as may be necessary to discharge the duties placed upon the De-

56-208

THE INS U RANCE DEPARTMENT

12

partment by this Title. The Commissioner shall fix the compensation of all such personnel.

(2) The Commissioner, or any deputy, examiner, actuary, clerk or any employee of the Department shall not be financially interested, directly or indirectly, in any insurer, agency or insurance transaction except as a policyholder or claimant under a policy; however, as to such matters wherein a conflict of interests does not exist on the part of any such individual, the Commissioner may employ from time to time insurance actuaries or other technicians who are independently practicing their professions even though similarly employed by insurers and others.
(3) The Commissioner or any deputy, examiner, actuary, clerk or employee of the Department, shall not be given or receive any fee, compensation, loan, gift, or other thing of value in addition to the compensation and expense allowance provided by law, for any service or pretended service either rendered or to be rendered, as such Commissioner, deputy, examiner, actuary, clerk or employee.

56-208. Examinations.-(1) Whenever the Commissioner shall deem it expedient, he shall examine, either in person or by some examiner duly authorized by him, the affairs, transactions, accounts, records, documents, and assets of each insurer authorized to do business in this State and any other fact relative to its business methods, management and its dealings with policyholders. At least once every five years, he shall so examine each domestic insurer. Examination of an alien insurer shall be limited to its insurance transactions in the United States.
(2) Whenever he shall deem it necessary, and at least once in five years, the Commissioner shall fully examine each rating organization which is licensed in this State. As often as he shall deem it necessary, he may examine each advisory organization and each joint underwriting or joint reinsurance group, association or organization.

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T HE INSURANCE DEPARTMENT

56-210

(3) The Commissioner shall in like manner examine each insurer or rating organization applying for authority to do business in this State.
(4) In lieu of making his own examination, the Commissioner may accept a full report of the last recent examination of a foreign or alien insurer, certified to by the insurance supervisory official of another state, territory, commonwealth, or district of the United States.
56-209. Examination of agents, solicitors, brokers, counselors, adjusters, managers and promoters.-For the purpose of ascertaining their compliance with this Title, the Commissioner may when he deems it necessary in the public interest examine the affairs, accounts, records, documents, and transactions of:
( 1) Any insurance agent, solicitor, broker, counselor or adjuster.
(2) Any person having a contract under which he enjoys in fact the exclusive or dominant right to control an insurer.
(3) Any person holding the shares of capital stock or policyholder proxies of a domestic insurer for the purpose of control of its management either as voting trustee or otherwise.
(4) Any person engaged in the promotion or formation of a domestic insurer, or insurance holding corporation, or corporation to finance a domestic insurer or the production of its business.
56-210. Access to records; correction of accounts.( 1) Every person being examined, its officers, employees, and representatives shall produce and make freely accessible to the Commissioner the accounts, records, documents, and files in his possession or control relating to the subject of the examination. Such officers, employees and representatives shall facilitate such examination and aic the examiners as far as it is in their power in making the examination.

56-211

THE INSURANCE DEPARTMENT

14

(2) If the Commissioner finds the accounts to be inadequate, or incorrectly kept or posted, he may employ experts to rewrite, post or balance such records at the expense of the person being examined, if such person has failed to correct such accounting within sixty (60) days after the Commissioner has given him notice to do so.

56-211. Examination reports.-(!) The Commissioner shall make a full written report of each examination made by him containing only facts ascertained from the accounts, records, and documents examined and from the sworn testimony of witnesses.

(2) The report shall be certified by the Commissioner or by the examiner in charge of the examination and when so certified and, after filing as provided in subsection (3) hereof, shall be admissible in evidence in any proceeding brought by tlie Commissioner aganst the person examined or any officer or agent of such person and shall be prima facie evidence of the facts stated therein.

(3) The Commissioner shall furnish a copy of the proposed report to the person examined not less than twenty (20) days prior to filing the report. If such person so requests in writing within such twenty (20) day period, or such longer period as the Commissioner may grant, the Commissioner shall grant a hearing with respect to the report, and shall not so file the report until after the hearing and such modifications have been made therein as the Commissioner may deem proper.

(4) The Commissioner may withhold from public inspection the report of any examination or investigation for so long as he deems it to be in the public interest or necessary to protect the person examined from unwarranted injury.

(5) After the report has been filed, the Commissioner may publish the report or the results thereof in one or more newspapers published in this State, if he should deem it to be in the public interest.

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THE INS URANCE DEPARTMENT

56-214

56-212. Expense of examination.-The insurer or other person so examined shall pay, at the direction of the Commissioner all the actual travel and living expenses of such examination. When the examination is made by an examiner who is not a regular employee of the Department, the person examined shall pay the proper charges for the services of the examiner and his assistants and the actual travel and living expenses incurred by such examiners and assistants in an amount approved by the Commissioner. A consolidated account for the examination shall be filed by the examiner with the Commissioner. No person shall pay and no examiner shall accept any additional emolument on account of any examination. When the examination is conducted in whole or in part by regular salaried employees of the Department, payment for such services and proper expenses shall be made by the person examined to the Commissioner, and such payment shall be deposited in the State Treasury: Provided, however, that when an agent, broker, solicitor, counselor or adjuster is examined because of a complaint filed against such agent, broker, solicitor, counselor or adjuster, and the Commissioner finds that the complaint was not justified, the expenses of the examination shall not be assessed against the agent, broker, solicitor, counselor or adjuster but shall be borne by the Department.
56-213. Delegation of authority.-(!) Any authority, power or duty vested in the Commissioner by any provision of this Title may be exercised, discharged or performed by any deputy, assistant, examiner or employee of the Department acting in the Commissioner's name and by his delegated authority.
(2) The Commissioner shall be responsible for the official acts of such persons who act in his name and by his authority.
56-214. Enforcement.-(!) The Commissioner may institute suits or other legal proceedings as may be required for the enforcement of any provisions of this Title. If the Commissioner has reason to believe that any person has violated any provision of this Title for which crimi-

56-215

T HE INSURANCE D EPARTME N T

16

nal prosecution is provided, he shall so inform the solicitor general or solicitor in whose circuit or jurisdiction such violation may have occurred.

(2) The Commissioner may prosecute an action in any superior court of proper venue to enforce any order made by him pursuant to the provisions of this Title.

56-215. Witnesses and evidence.-(1) With respect to the subject of any examination, investigation or hearing conducted by him or his duly authorized representative, the Commissioner may take depositions, subpoena witnesses and administer oaths or affirmations and examine any individual under oath, and compel the production of records, books, papers, and other documents.

(2) Witness fees and mileage, if claimed, shall be allowed as for witnesses appearing in superior court. Witness fees, mileage, and the actual expense necessarily incurred in securing attendance of witnesses and their testimony shall be itemized, and shall be paid by the person being examined or investigated if in the proceedings in which the witness is called such person is found to be in violation of the law, or by the person, if other than the Commissioner, at whose request the hearing is held.
(3) Subpoenas of witnesses shall be served in the same manner as if issued by a superior court. If any individual fails to obey a subpoena issued and served hereunder with respect to any matter concerning which he may be lawfully interrogated, on application of the Commissioner the superior court of the county in which the proceeding is pending at which such individual was so required to appear may issue an order requiring such individual to comply with the subpoena and to testify.
(4) Any person wilfully testifying falsely under oath as to any matter material to any .such examination, investigation or hearing, shall upon conviction thereof be guilty of false swearing and shall be punished accordingly.

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THE INS URANCE DEPARTMENT

56-216

(5) In addition to any other liability or punishment prescribed, any person who without just cause fails or refuses to attend and testify, or to answer any lawful inquiry or to produce any books, papers or records in obedience to a lawful sub.poena issued by the Commissioner or by his authority, shall be guilty of a m}sdemeanor.
56-216. Rules and regulations.-(!) The Commissioner shall have full power and authority to make rules and regulations for the following purposes:
(a) To organize the Insurance Department and to assign duties to members of the staff;
(b) To effectuate the provisions of this Title;
(c) To issue interpretative rulings or to prescribe forms required to carry out the responsibilities of his office; and to promulgate such other rules and regulations as are reasonably necessary to implement the provisions of this Title ;
(d) To govern the procedure to be followed in the proceedings before the Insurance Department.
(2) Before any rule or regulation shall become effective or before any amendment or repeal of any rule shall become effective, the proposed rule or regulation or amendment or repeal shall be approved as to legality by the Attorney General and shall have been on file as a public record in the office of the Commissioner for at least ten (10) days.
(3) Prior to the adoption of any rule or regulation, or the amendment or repeal thereof, the Commissioner shall publish or otherwise circulate notice of his intended action and afford interested persons opportunity to submit data or views either orally or in writing.
(4) The Commissioner shall compile and keep on file in his office as a public record a set of such rules and

56-217

THE INSURANCE DEPARTMENT

18

regulations which are in effect and shall prepare copies of such rules and regulations which shall be available upon request. The Commissioner shall fix a price covering such compilation which shall cover costs of preparation and mailing.
56-217. Orders, notices.- (1) Orders and notices of the Commissioner shall be effective only when in writing signed by him or by his authority.
(2) Every such order shall state its effective date and shall state concisely:
(a) Its intent or purpose.
(b) The grounds on which it is based.
(c) The provisions of this Code pursuant to which action is taken or proposed to be taken; but failure to so designate any provision shall not deprive the Commissioner of the right to rely thereon.
(3) An order or notice may be given by delivery to the person to be ordered or notified or by mailing it, postage prepaid, addressed to him at his principal place of busi~ ness as last of record in the Commissioner's office.
56-218. Hearings.-(1) The Commissioner may hold hearings for any purpose within the scope of this Title as he may deem necessary.
(2) He shall hold a hearing:
(a) If required by any provision of this Title, or
(b) Upon written demand for a hearing made by any person aggrieved by any act, threatened act, or failure of the Commissioner to act if such failure is deemed an act under any provision of this Title, or by any report, promulgation or order of the Commissioner (other than an order on a hearing of which such person was given actual notice or at which such person appeared as a party, or order pursuant to the order on such hearing).

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T HE I NsuRA NCE D EPARTMEN T

56-222

Any such demand for a hearing shall specify in what respects such person is aggrieveg and the grounds to be relied upon as a basis for the relief to be demanded at the hearing, and unless postponed by mutual consent, the hearing shall be held within thirty (30) days after receipt by the Commissioner of the demand therefor. Such hearing shall be held only if the Commissioner shall find that the demand for a hearing is made in good faith, that the applicant would be aggrieved, and that such grounds otherwise justify holding such hearing.
(3) Pending such hearing and decision thereon the Commissioner may suspend or postpone the effective date of his previous action.
56-219. Place of hearing.-The hearing shall be held at the place designated by the Commissioner and shall be open to the public.
56-220. Notice of hearing.-Not less than ten (10) days in advance the Commissioner shall give notice of the time and place of the hearing, stating the matters to be considered at such hearing. If the persons to be given notice are not specified in the provision pursuant to which the hearing is held, the Commissioner shall give such notice to all persons directly affected by such hearing. In the event all persons directly affected are unknown, notice may be perfected by publication in a newspaper of general circulation in this State at least ten (10) days prior to such hearing.
56-221. Show cause notice.-If any person is entitled to a hearing by any provision of this Title before any proposed action is taken, the notice of the proposed action may be in the form of a notice to show cause stating that the proposed action may be taken unless such person shows cause at a hearing to be held as specified in the notice, why the proposed action should not be taken, and stating the basis of the proposed action.
56-222. Conduct of hearing.-(1) The hearing shall be presided over by the Commissioner or his designated representative.

56-223

THE IN SURANCE D E PARTMEN T

20

(2) The Commissioner shall allow any party to the hearing to appear in person or by counsel, to be present during the giving of all evidence, to have a reasonable opportunity to inspect all documentary evidence and to examine witnesses, to present evidence in support of his interest, and to have subpoenas issued by the Commissioner to compel attendance of witnesses and production of evidence in his behalf.
(3) The Commissioner shall permit to become a party to the hearing by intervention, if timely, only such persons who may be aggrieved by the Commissioner's order made upon the hearing.
(4) Formal rules of pleading or evidence need not be observed at any hearing.
(5) Upon written request seasonably made by a party to the hearing and at such person's expense, the Commissioner shall cause a full record of the proceedings to be made. If transcribed, a copy of such record shall be furnished to the Commissioner, without cost to the Commissioner or the State, and shall be a part of the Commissioner's record of the hearing. If so transcribed a copy of such record shall be furnished to any other party to such hearing at the request and expense of such other party. If no record is made or transcribed, the Commissioner shall prepare an adequate record of the evidence and of the proceedings.
(6) Upon written request of a party to a hearing filed with the Commissioner within thirty (30) days after any order made pursuant to a hearing has been mailed or delivered to the persons entitled to receive the same, the Commissioner may, in his discretion, grant a rehearing or reargument of the matters involved in such hearing, and notice of such rehearing or reargument shall be given as provided in section 56-220.
56-223. Adjourned hearings; nonattendance. - (1)
The Commissioner may adjourn any hearing from time to time and from place to place without other notice of the

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T H E I NSU RAN CE D E PARTMENT

56-225

adjourned hearing than announcement thereof at the hearing.
(2) The validity of any hearing held in accordance with the notice thereof shall not be affected by failure of any person to attend such hearing or to remain in attendance.

56-224. Order on hearing.-(1) Within thirty (30) days after termination of the hearing or of any rehearing or reargument, the Commissioner shall make his order thereon, covering matters involved in such hearing and in any rehearing or reargument, and shall give a copy of such order to the same persons given notice of the hearing.

(2) The order shall contain a concise statement of the facts as found by the Commissioner, a concise statement of his conclusions therefrom, and the effective date of the order.
(3) The order may affirm, modify, or nullify action theretofore taken or may constitute the taking of new action within the scope of the notice of hearing.

56-225. Judicial review; parties.-An appeal from the Commissioner shall be taken only from an order on hearing, or with respect to a matter as to which the Commissioner has refused or failed to grant or hold a hearing after demand therefor under section 56-218, or as to a matter as to which the Commissioner has refused or failed to make his order on hearing as required by section 56-224. Any person who was a party to such hearing, or whose pecuniary interests are directly and immediately affected by such refusal or failure to grant a hearing, and who is aggrieved by such order, refusal, or failure may appeal from such order on hearing or as to any such matter within thirty (30) days after:
(1) The order on hearing has been mailed or delivered to the persons entitled to receive the same; or

56-226

THE INSURANCE DEPARTMENT

22

(2) The Commissioner's order denying rehearing or reargument has been so mailed or delivered; or
(3) The Commissioner has refused or failed to make his order on hearing as required under section 56-224; or
(4) The Commissioner has refused or failed to grant or hold a hearing as required under section 56-218.
56-226. Judicial review; pleading and procedure.(1) The form of proceeding for judicial review shall be by a petition in the Superior Court of Fulton County, a copy of which shall be served upon the Commissioner forthwith.
(2) The proceedings shall follow the course which is now or may hereafter be prescribed for civil actions in the Supeiior Courts; Provided, that the reviewing court may by order extend the time required for filing any pleadings or motions, and Provided further, that such court may by order provide for expeditious hearing or trial of any such proceedings, as justice or the public interest may require.
(3) The petition or other pleading in which judicial review shall be sought, shall plainly specify the action complained of, and shall set forth the relief sought, and without excessive detail, the facts and circumstances supporting the petitioner's right to such relief.
(4) Pending judicial review pursuant to any proceeding authorized for the purpose, the Commissioner, if the action has not become effective, may postpone the effective date of the action complained of. Upon such conditions as may be required, and to the extent necessary to preserve the status of proceedings, or the rights of the parties, or to prevent irreparable injury, in ariy proceeding for judicial review, the reviewing court, or any appellate court, is authorized to issue all necessary and appropriate orders to postpone the effective date of any action, or to temporarily grant or extend relief denied or withheld.

23

THE I NSURANCE DEPARTMENT

56-227

(5) Whether or not prayed for, the court may remand the matter for further proceedings or findings on terms specified by order, or may require the parties to complete any record found to be inaccurate or inadequate for decision.
56-227. Judicial review; scope of review; trial de novo; exceptions.-(!) Unless review of the action complained of is required by law to be de novo:
(a) Where proceedings have been held before the Commissioner, the Commissioner shall file with his reply to the reviewing court, a certified transcript of all such proceedings, and all evidence before him in such proceedings; Provided, however, that the parties may, by written stipulation, agree to an abbreviated record including so much of the transcript as shall be necessary to determine the questions under review.
(b) The reviewing court's decision shall be upon the basis of the pleadings and the record so presented.
(c) The findings of the Commissioner as to any fact, if supported by substantial evidence upon consideration of the record as a whole, shall be conclusive.
(d) If issues of fact outside the record shall be made by the pleadings they may be determined by the court.
(2) Judicial review of any fact determined by the Commissioner shall be de novo unless:
(a) Such determination was made after a hearing required or authorized by this Title; or
(b) Such determination is one committed by law to the Commissioner's discretion.
(3) So far as necessary to decision and where presented the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of any Department action. The court shall:

56-228

THE I N S URANCE D E PARTMENT

24

(a) Compel Department action unlawfully withheld or unreasonably delayed; and
(b) Hold unlawful and set aside Department action, findings and conclusions found to be:
(i) Arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(ii) Contrary to legal or constitutional right, power, privilege, or immunity;
(iii) In excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(iv) Without observance of procedure required by law;
(v) Unsupported by substantial evidence upon consideration of the record as a whole, in cases determined pursuant to section 56-227 (1) (b) and (c);
(vi) Unwarranted by the facts in cases where the facts are subject to trial de novo by the reviewing court.
In making the foregoing determinations the court shall review the whole record or such portions thereof as may be cited by any party, and due account shall be taken of the rule of prejudicial error.
The reviewing court may also grant such further relief either legal or equitable, or both, as the interest of the public and the aggrieved parties in such proceedings shall require.
56-228. Collection and disposition of fees and taxes.The Commissioner shall collect the charges, fees, dues and taxes which he is authorized by law to collect and shall give proper receipts therefor. At least quarterly, or oftener if he shall deem it expedient, the Commissioner shall pay into the State Treasury all amounts collected by him, less any refunds which are authorized to be made by him under Chapter 56-13.

25

A U THORIZATION OF INSURERS, ETC.

56-301

56-229. Limitation.-Sections 56-218 through and including section 56-227 shall not apply to hearings and appeals arising under Chapters 56-5 A and 5 B.

CHAPTER 56-3
AUTHORIZATION OF INSURERS AND GENERAL REQUIREMENTS FOR DOING BUSINESS IN THIS STATE.
56-301. Definitions. 56-302. Authority to transact insurance required. 56-303. ~ General qualifications to transact insurance. 56-304. Kinds of insurance an insurer may transact. 56-305. Classes of insurance. 56-306. Capital funds required. 56-307. Expendable surplus required for new insurers. 56-308. [Reserved]. 56-309. Deposit requirements. 56-310. Deposit by foreign and alien insurers. fi6-311. Financial requirements, existing insurers, esca-
lator provisions. 56-312. Application for certificate of authority. 56-313. License fee. 56-314. Issuance or refusal of certificate. 56-315. Expiration, renewal or amendment of certificate. 56-316. Mandatory refusal, revocation or suspension. 56-317. Discretionary refusal, revocation or suspension. 56-317.1. Administrative fine for certain Acts of Officers,
Employees, Agents or Representatives. 56-317.2. Discretionary Supension Without Notice and
hearing when delinquency proceedings have comm enced. 56-318. Name of insurer. 56-319. Reports of insurer's business affairs and operations; forms; verification; publication. 56-320. Resident agent required. 56-321. Retaliation.
56-301. Definitions.-A "domestic" insurer is one formed under the laws of Georgia.

56-302

AUTHORIZATION OF INSURERS, ETC.

26

A "foreign" insurer is one formed under the laws of another state or government of the United States.
An "alien" insurer is one formed under the laws of a country other than the United States.
"State" means any state, commonwealth, territory, or district of the United States.
"United States" includes the states, territories, districts, and commonwealths thereof.
"Charter" means articles of incorporation, of agreeme,nt, of association, or other basic constituent document of a corporation, subscribers' agreement and power of attorney of a reciprocal insurer, or underwriters' agreement and power of attorney of a Lloyds insurer.
56-302. Authority to transact insurance required.~
(1) No person shall act as an insurer and no insurer shall transact insurance in Georgia except as authorized by a subsisting certificate of authority granted to it by the Commissioner, except as to such transactions as are expressly otherwise provided for in this Title.
(2) The mere investigation and adjustment of any claim in this State arising under an insurance contract, and litigation in connection therewith, shall not be deemed to constitute the transacting of insurance in this State.
(3) An insurer, not transacting new insurance business in Georgia but continuing collection of premiums on and servicing of policies remaining in force as to residents of or risks located in Georgia, is transacting insurance in Georgia for the purpose of premium tax requirements only and is not required to have a certificate of authority therefor; Provided, however that any requirements as to payment of premium and annuity taxes shall not apply to insurers which have withdrawn from Georgia prior to the effective date of this Title.

27

AUTHORIZATION OF INSURERS, ETC.

56-303

(4) As to an insurance coverage on a subject of insurance not resident, located, or expressly to be performed in Georgia at time of issuance, and solicited, written, and delivered outside Georgia, no such authority shall be required of an insurer as to subsequent transactions in Georgia on account thereof, and the provisions of this Title shall not apply to such insurance or insurance coverage, except for the purpose of premium tax requirements.
56-303. General qualifications to transact insurance.(1) To qualify for and hold authority to transact insurance in Georgia an insurer must be otherwise in compliance with the provisions of this Title and with its charter powers, and must be an incorporated stock insurer, an incorporated mutual insurer, fraternal benefit society, hospital service nonprofit corporation, nonprofit medical service corporation, a farmers' mutual fire insurance company, a Lloyds association or a reciprocal insurer, of the same general type as may be formed as a domestic insurer under this Title; except that no foreign or alien insurer shall be authorized to transact insurance in Georgia which does not maintain reserves as required by Chapter 56-9 ap-plicable to the kind or kinds of insurance transacted in the United States by such insurer.
(2) No certificate of authority or license to transact any kind of insurance business in this State shall be issued, renewed or continued in effect, to any domestic, foreign or alien insurance company or other insurance entity which is owned, or financially controlled, in whole or in substantial part by any State of the United States, or by a foreign government, or by any political subdivision, instrumentality or agency of either, or which is an agency of such state or foreign government or any political subdivision, instrumentality or agency of either, unless such company or entity was so owned, controlled or constituted prior to January 1, 1957, and was authorized to do business in this State on or prior to said date.

56-304

AUTHORIZATION OF INS U RERS, ETC.

28

(3) Membership in a mutual insurer or subscribership in a reciprocal insurer, or supervision of an insurer by public insurance supervisory authority shall not be deemed to be an ownership, control, or operation of the insurer for the purposes of subsection (2) above.
56-304. Kinds of insurance an insurer may transact.An insurer which otherwise qualifies therefor may be authorized to transact any one kind or combination of kinds of insurance as defined in Chapter 56-4 except:
(1) A reciprocal insurer shall not transact life insurance.
(2) A Lloyds insurer shall not transact life insurance.
(3) A title insurer shall be a stock insurer and shall not be authorized to transact any other class of insurance, except that if immediately prior to the effective date of this Title any title insurer lawfully held a subsisting certificate of authority granting it the right to transact in Georgia additional classes of insurance other than title insurance, so long as the insurer is otherwise in compliance with this Title, the Commissioner shall continue to authorize such insurer to transact the same classes of insurance as those specified in s'uch prior certificate of authority.
56-305. Classes of insurance.-For the purpose of this Chapter the kinds of insurance defined in Chapter 56-4 shall be arranged in the following five classes :
(1) Life, accident and sickness;
(2) Property, marine and transportation;
(3) Casualty;
(4) Surety;
(5) Title.

29 _________A__u_T_H_OR_I_z_AT_I_o_N__O_F_J_N_s_u_R_ER_s_,_E_T_c_. _______5_6_-3_0_9
Each of the above numbered groups shall constitute a class of insurance.
56-306. Capital funds required.-(1) To qualify for authority to transact insurance an insurer shall possess and thereafter maintain paid in capital stock (if a stock insurer) or surplus (if a foreign or alien mutual or reciprocal insurer) in amount not less than two hundred thousand ($200,000) dollars for each class of insurance in which the insurer will engage, but the maximum for any combination of kinds of insurance shall not be required to exceed four hundred thousand ($400,000) dollars.
(2) As to surplus required for initial qualification to transact one kind of insurance and thereafter to be maintained, domestic mutual insurers shaH be governed by Chapter 56-15, and domestic reciprocal insurers shall be governed by Chapter 56-21. Hospital service nonprofit corporations and nonprofit medical service corporations shall be governed by Chapters 56-17 and 56-18 respectively. Farmers' mutual fire insurance companies shall be governed by Chapter 56-20.
56-307. Expendable surplus required for new insurers.-In addition to the minimum paid in capital (of stock insurers) or minimum surplus (of mutual and reciprocal insurers) required by this Title, an insurer shall possess when first authorized in this State, surplus or additional surplus equal to the larger of two hundred thousand ($200,000) dollars (stock, mutual and reciprocal insurers) or fifty (50%) percent of its paid-in capital stock (if a stock insurer) or of its surplus (if a mutual or reciprocal insurer) otherwise required under section 56-306 for the kinds of insurance to be transacted.
56-308. [Reserved].
56-309. Deposit requirements.- (1) The Commissioner shall not issue a certificate of authority to transact insurance to any insurer unless it has deposited in trust

56-309

AUTI-IORIZATION OF INSURERS, ETC.

30

with this State securities eligible for the investment of capital funds of domestic insurers under this Title in an amount not less than that required in subsection (2) of this section. This section does not apply to farmers' mutual fire insurance companies.
(2) (a) The amount of the deposit required for a certificate to transact any one class of insurance shall be one hundred thousand ($100,000) dollars; to transact each additional class of insurance, the amount of deposit shall be twenty-five thousand ($25,000) dollars, subject to the limitation that not more than two hundred thousand ($200,000) dollars total deposit shall be required for any combination of classes.
(b) As to foreign insurers, in lieu of such deposit or part thereof in this State, the Commissioner shall accept the current certificate in proper form of the public official having supervision over insurers in any other state to the effect that a like deposit or part thereof by such insurer is being maintained in public custody in such state in trust for the purpose, among other reasonable purposes, of protection of policyholders and/or creditors, or of the protection of all the insurer's policyholders or of all of its policyholders and obligees.
(c) As to alien insurers, other than title insurers, in lieu of such deposit or part thereof in this State, the Commissioner shall accept the certificate of the official having supervision over insurance of another state in the United States, given under his hand and seal, that the insurer maintains within the United States by way of deposits with public depositories, or in trust institutions within the United States approved by such official, assets available for discharge of its United States insurance obligations which assets shall be in amount not less than the outstanding liabilities of the insurer arising out of its insurance transactions in the United States, together with the larger of the following sums: (i) The largest deposit required by this Title to be made in this State by any type

31

AUTIIOR!ZATION OF IN SURERS, ETC.

56-311

of domestic insurer transacting like kinds of insurance, or (ii) Three hundred thousand ($300,000) dollars.
56-310. Deposit by foreign and alien insurers.-In addition to the deposit required by section 56-309 each foreign and alien insurer shall deposit with the Treasurer of the State of Georgia securities eligible for the investment of capital funds in an amount not less than ten thousand ($10,000) dollars nor more than twenty-five thousand ($25,000) dollars at the discretion of the Commissioner. This deposit and the deposit required by section 56-309
(2) (a) shall be administered as provided in Chapter 56-11. Deposits under this section shall be held for the protection of the insurer's policyholders in Georgia and others in Georgia entitled to the proceeds of its policies.
On and after July 1, 1967, in those instances where the commissioner in his judgment shall deem it to be in the best interests of the citizens of this State, no certificate of authority shall be issued by the commissioner to any foreign and alien insurer, nor shall any certificate of authority be renewed for any such insurer, unless said insurer shall deposit with the Treasurer of the State of Georgia, in addition to those requirements provided for above, securities eligible for the investment of capital funds in such amount as the commissioner shall require but in no event shall he require a deposit of additional securities which would bring the aggregate total of such securities required by this section to be on deposit to exceed $100,000. Such additional deposits shall be administered as provided for above: Provided, however, such additional deposits shall not apply to foreign and alien life insurers.
56-311. Financial requirements, existing insurers, escalator provisions.-(!) If with respect to any insurer lawfully authorized to transact insurance in Georgia immediately prior to the effective date of this Act, this Title requires a greater amount of capital, or surplus, or deposit than required of such insurer immediately

56-312

AUTHORIZATION OF I NSURERS, ETC.

32

prior to such effective date; such insurer shall have the period ending July 1st five years after the enactment of this Title within which to comply with any such increased requirement.
(2) If within this five year period, however, an insurer is authorized to write an additional class or additional classes of insurance, it shall be subject immediately to the increased requirements of this Title concerning such class or classes.
56-312. Application for certificate of authority.-To apply for an original certificate of authority an insurer shall file with the Commissioner its application therefor showing its name, location of its home office or principal office in the United States (if an alien insurer), kinds of insurance to be transacted, date of organization or incorporation, form of organization, state or country of domicile, the names and addresses of all general officers of the company, with the number of shares of capital stock of the company held by or for each such general officer, or by others for his benefit, and the percentage of the total capital stock of the company held by each such general officer, the date on .which the company began to do business, and the states in which it is admitted to do business, and such additional information as the Commissioner may require, together with the following applicable documents:
(1) A copy of its corporate charter with all amendments thereto certified by the public officer with whom the orginals are on file in the state or country of domicile.
(2) A copy of its bylaws as amended, certified by its secretary or other officer having custody thereof.
(3) A copy of its annual statement as of December 31st last preceding in a form approved for current use by the Commissioner, aJJ.d certified by two officers of the company. The annual statement of an alien insurer shall relate only to the transactions and affairs in the

33

f\UTHORIZATION OF INSURERS, ETC.

56-314

United States unless the Commissioner requires otherwise.
(4) Copy of report of the last examination, if any, made of the insurer, certified by the insurance supervisory official of its state of domicile or of entry into the United States.
(5) If a foreign or alien insurer, appointment bf the Commissioner as its attorney to receive service of legal process.
(6) If a foreign or alien insurer, a certificate of the public official having supervision of insurance in its state or country of domicile showing that it is authorized to transact the kinds of insurance proposed to be transacted in Georgia.
(7) If an alien insurer, a copy of the appointment and authority of its United States manager, certified by its officer having custody of its records.
(8) If a foreign or alien insurer, certificate as to deposit if to be tendered pursuant to section 56-309.
56-313. License fee.-Every original application shall be accompanied by the fe e required by law, which sh~ll be returned to the applicant if the application is finally denied.
56-314. Issuance or refusal of Certificate.-(1) Upon filing of an application for an original certificate or authority, the Commissioner shall have ninety (90) days in which to approve the application by issuing an appropriate certificate of authority, or disapprove the application by issuing an order setting forth the grounds for such disapproval. The Commissioner may extend such ninety (90) day period for an additional ninety (90) days by notifying the applicant in writing of such extension. If the application is not approved or disapproved within the time period as above set forth, but in no event to exceed

56-315

AUTHORIZATION OF INSURERS, ETC.

34

one hundred eighty (180) days, the application shall be deemed approved and the Commissioner shall thereupon issue the appropriate certificate of authority.
(2) The certificate, if issued, shall specify the kind or kinds of insurance the insurer is authorized to transact in Georgia. At the insurer's request, the Commissioner may issue a certificate of authority limited to particular types of insurance included within a kind of insurance as defined in this Title.
56-315. Expiration, Renewal or Amendment of Cer-
tificate.- (1) All certificates of authority shall expire at midnight on June 30th next following date of issuance or renewal. An insurer desiring renewal shall file on March 1st preceding expiration a copy of its annual statement of December 31st last preceding in a form approved for current use by the Commissioner. On or before March 1 of each year each insurer, at its expense, shall publish in a newpaper of general circulation published in this State, a copy of such statement in short form showing income, assets, expenditures, and liabilities in gross, as of December 31 preceding, to be sworn to by the officer or agent making the same and such statement so published must be filed with the Commissioner with a copy of the statement as published attached thereto. Provided, that the Commissioner may for good cause grant an extension of time for filing such annual statement not to exceed sixty (60) days. If the insurer qualifies therefor its certificate shall be renewed annually; Provided, however, that any certificate of authority shall continue in full force and effect until the new certificate be issued or specifically refused.
(2) The Commissioner may amend a certificate of authority at any time to accord with changes in the insurer's charter or insuring powers.
56-316. Mandatory refusal, revocation or suspension.
-The Commissioner shall refuse to issue or to renew

35

AUTHORIZATION OF INSURERS, ETC.

56-317

or shall revoke or suspend an insurer's ce~tificate of authority:
(1) If such action is required by any provision of this Title; or
(2) If the insurer no longer meets the requirements for the authority originally granted, on account of deficiency in assets or otherwise.
56-317. Discretionary refusal, revocation or suspension.-The Commissioner may refuse to issue or after a hearing refuse to renew, or may revoke or suspend an insurer's certificate of authority, in addition to other grounds therefor in this Title, if the insurer:
(1) Violates any provision of this Title other than those as to which refusal, suspension or revocation is mandatory.
(2) Knowingly fails to comply with any lawful rule, regulation or order of the Commissioner.
(3) Is found by the Commissioner to be in unsound condition or in such condition as to render its further transaction of insurance in Georgia hazardous to its policyholders or to the public.
(4) As a general scheme or plot without just cause compels claimants to accept less than the amount due them or to bring suit against it to secure full payment thereof.
(5) Refuses to be examined or to produce its accounts, records and files for examination by the Commmissioner when required; or refuses to furnish such other additional information as the Commissioner may deem advisable to consider the application for renewal of such insurer's certificate of authority.
(6) Fails to pay any final judgment rendered against

56-317.1

AUTHORIZATION OF INSURERS, ETC.

36

it in Georgia within thirty (30) days after such judgment becomes final.
(7) Is affiliated with and under the same general management or interlocking directorate or ownership as another insurer which transacts direct insurance in Georgia without having a certificate of authority therefor, except as permitted to a surplus line insurer under Chapter 56-6.
56-317.1.-Administrative Fine for Certain Acts of Officers, Employees, Agents or Representatives. The Commissioner may, after a hearing, impose upon an insurer an administrative fine if he finds that such insurer through the acts of its officers, employees, agents or representatives has:
(1) With such frequency as to indicate its general business practice in this State:
(a) Refused, without just cause, to pay proper claims arising under coverage provided by its policies, whether such claim is in favor of an insured or in favor of a third person with respect to the liability of an insured to such third person or in favor of any other person entitled to the proceeds of a policy, or
(b) Compelled, without just cause, insureds, claimants or other persons entitled to the proceeds of its policies in this State to accept less than the amount due them or to bring suit against the insurer or an insured to secure full payment or settlement thereof.
The administrative fine imposed for violations set forth in paragraphs (a) or (b) shall not exceed $1,000.00 for each act of misconduct constituting a violation provided, however, a fine of not more than $5,000.00 for each act of willful misconduct constituting a violation may be imposed.
56-317.2.-Discretionary Suspension Without Notice and Hearing Where Delinquency Proceedings Have Commenced. The Commissioner may, without advance notice or a hearing thereon, suspend immediately the Certificate of Authority of any insurer as to which proceedings for receivership, conservatorship, rehabilitation, or other de-

37

A uTHORIZATION oF INSURERs, ETC.

56-3 19

Jinquency proceedings have been commenced in any State by the public insurance supervisory official of such State.
56-318. Name of insurer.-(1), No insurer shall be authorized to transact insurance in Georgia which has or uses a name so similar to that of any insurer already so authorized as to cause uncertainty or confusion; except, that in case of conflict of names between two insurers the Commissioner may permit or require as a condition to the issuance of an original certificate of authority to an insurer making application therefor, that such insurer use in Georgia such supplementation or modification of its name as may reasonably be necessary to avoid such conflict.
(2) No insurer shall be authorized to transact business in Georgia which has or uses a name which would deceptively mislead as to the type of organization of the insurer.
56-319. Reports of insurer's business affairs and op-
erations; forms; verification; publication.-Every insurer shall, on or before the first day of March in each year after it shall have commenced to do business pursuant to a certificate of authority, make and file with the Insurance Commissioner a report of its affairs and operations during the year ending the 31st day of December next preceding. This annual report shall be made in such form and contain such information as the Commissioner may by regulation from time to time prescribe and require in protecting the public interest, the interest of the policyholders of any insurer, and the interest of the investors in the securities issued by any insurer. The Commissioner may, by regulation, require such additional periodic reports as he may from time to time prescribe as necessary or appropriate for the protection of policyholders, investors and the public and to insure the solvency of any insurer, to inform and protect the investors in any insurer and to assure fair dealing in the securities of any insurer. The Commissioner may require that the reports be verified under oath by such appropriate officers or agents as he may designate

56-320

A UTHORIZATION OF INS U RERS, ETC.

38

by regulation and may require the same to be published. Compliance with this section shall be a condition to the renewal of a certificate of authority under section 56-315.
56-320. Resident agent required.-(1) No authorized insurer shall issue a policy covering a subject of insurance resident, located, or to be performed in Georgia unl ess the policy, or countersignature endorsement attached thereto is countersigned by its licensed agent, resident in Georgia. A licensed service representative, resident in Georgia, may countersign such policy or endorsement for and on behalf of the licensed agent upon written request of the Georgia agent.
(2) Subsection (1) shall not apply to:
(a) Reinsurance, or to life, or accident and sickness insurance.
(b) Insurance of the rolling stock, vessels or aircraft of any common carrier in interstate or foreign commerce, or of any vehicle principally garaged and used in another state, or covering any liability or other risks incident to the ownership, maintenance or operation thereof.
(c) Insurance of property in course of transportation interstate or in foreign trade, or any liability or risk incident thereto.
(d) Insurance of ocean marine risks.
(e) Bid bonds issued by any surety insurer in connection with any public or private building or construction project.
(3) Violation of this section shall not invalidate the policy.
56-321. Retaliation.-(1) When by or pursuant to the laws of any other state or foreign country any taxes,

39

AUTHORIZATION OF INSURERS, ETC.

56-321 ;

licenses and other fees, in the aggregate, and any fines, penalties, deposit requirements or other material obligations, prohibitions or restrictions are or would be imposed upon Georgia insurers, or upon the agents or representatives of such insurers, which are in excess of such taxes, licenses and other fees, in the aggregate, or which are in excess of the fines, penalties, deposit requirements or other obligations, prohibitions, or restrictions directly imposed upon similar insurers, or upon the agents or representatives of such insurers, of such other state or country under the statutes of this State, so long as such laws of such other state or country continue in force or are so applied, the same taxes, licenses and other fees, in the aggregate, or fines, penalties or deposit requirements or other material obligations, prohibitions, or restrictions of whatever kind shall be imposed by the Commissioner upon the insurers, or upon the agents or representatives of such insurers, of such other state or country doing business or seeking to do business in Georgia. Any tax, license or other fee or other obligation imposed by any city, county, or other political subdivision or agency of such other state or country on Georgia insurers or their agents or representatives shall be deemed to be imposed by such state or country within the meaning of this section.
(2) This section shall not apply as to personal income taxes, nor as to ad valorem taxes on real or personal property nor as to special purpose obligations or assessments imposed by another state, in connection with particular kinds of insurance, other than property insurance; except that deductions, from premium taxes or other taxes otherwise payable, allowed on account of real estate or personal property taxes paid shall be taken into consideration by the Commissioner in determining the propriety and extent of retaliatory action under this section.
(3) For the purposes of this section the domicile of an alien insurer, other than insurers formed under the laws of Canada, shall be that state designated by the

56-400

KINDS OF INSURANCE

40

insurer in writing filed with the Commissioner at .the time of admission to this State or within six months after the effective date of this Act, whichever date is the later, and may be any one of the following states:

(a) That in which the insurer was first authorized to transact insurance ;

(b) That in which is located the insurer's principal place of business in the United States; or,

(c) That in which is held the larger deposit of trusteed assets of the insurer for the protection of its policyholders and creditors in the United States.

If the insurer makes no such designation its domicile shall be deemed to be that state in which is located its principal place of business in the United States.

In the case of an insurer formed under the laws of Canada or a province thereof, its domicile shall be deemed to be that province in which its head office is situated.

CHAPTER 56-4

KINDS OF INSURANCE; REINSURANCE; LIMITS OF RISKS

56-401. Definitions not mutually exclusive.

56-402. "Life insurance" defined.

56-403. Persons subject to regulations.

56-404. "Accident and sickness insurance" defined.

56-405. "Property insurance" defined.

56-406. "Marine and transportation insurance" defined.

56-407. "Vehicle insurance" defined.

56-407.1. Requirements for motor vehicle liability pol-

icies; coverage of claims against uninsured

motorist.

56-408. "Casualty insurance" defined.

---- -

--

56-408.1. Effect of provision in policy permitting insurer

41

KINDS OF INSURANCE

56-404

to settle or compromise claims. 56-409. "Surety insurance" defined. 56-410. "Title insurance" defined. 56-411. [Reserved.] 56-412. Limit of risk. 56-413. Authorized reinsurance.
56-401. Definitions not mutually exclusive.-It is intended that certain coverages may come within the definitions of two or more kinds of insurance as set forth 'in this Chapter, and the fact that such a coverage is included within one definition shall not exclude such coverage as to any other kind of insurance within the definition of which such coverage likewise reasonably is includable.
56-402. "Life insurance" defined.-"Life insurance" is insurance on human lives and insurance appertaining thereto or connected therewith. The transacting of life insurance includes the granting of endowment benefits, additional benefits in the event of death or dismemberment by accident or accidental means, additional benefits in the event of the disability of the insured, and optional modes of settlement of proceeds of life insurance. An insurer authorized to transact life insurance may also grant annuities.
56-403. Persons subject to regulations.-Every person writing or issuing contracts of life insurance as describe.d in section 56-402 or as defined in section 56-2501, shall be de.emed to be engaged in the business of life insurance and shall be subject to all of the provisions of the laws of Georgia regulating life insurance companies.
56-404. "Accident and sickness insurance" defined."Accident and sickness insurance" is insurance against bodily injury, disablement, or death by accident or accidental means, or the expense thereof, or against disablement or expense resulting from sickness, and every insurance appertaining thereto.

56-405

UNAUTHORIZED INSURERS, ETC.

42

56-405. "Property insurance" defined.-"Property insurance" is insurance on real or personal property of every kind and interest therein, against loss or damage from any or all hazard or cause, and against loss consequential upon such loss or damage, other than noncontractual legal liability for any such loss or damage. Property insurance shall also include miscellaneous insurance as defined in subsection (11) of section 56-408 except as to any noncontractual liability coverage includable therein.
56-406. "Marine and transportation insurance" defined.-"Marine and transportation insurance" includes: ( 1) Insurance against any and all kinds of loss or damage to vessels, craft, aircraft, cars, automobiles and vehicles of every kind, as well as all goods, freight, cargoes, merchandise, effects, disbursements, profits, monies, bullion, precious stones, securities, choses in action, evidence of debt, valuable papers, bottomry and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit, or transportation, including war risks, on or under any seas or other waters, on land or in the air, or while being assembled, packed, crated, baled, compresseu or similarly prepared for shipment or while awaiting the same or during any delays, storage, transshipment, or reshipment incident thereto, including marine builders' risks and all personal property floater risks;
(2) Insurance against any and all kinds of loss or damage to person or to property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage to either, arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to the person arising out of the ownership, maintenance or use of automobiles);

43

KINDS OF INSURANCE

56-407

(3) Insurance against any and all kinds of loss or damage to precious stones, jewels, jewelry, gold, silver and other precious metals, whether used in business or trade or otherwise and whether the same be in course of transportation or otherwise;
(4) Insurance against any and all kinds of loss or damage to bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage) unless fire, tornado, sprinkler leakage, hail, explosion, earthquake, riot or civil commotion or any or all of them are the only hazards to be covered ;
(5) Insurance against any and all kinds of loss or damage to piers, wharves, docks and slips, excluding the risks of fire, tornado, sprinkler leakage, hail, explosion, earthquake, riot and civil commotion and each of them;
(6) Insurance against any and all kinds of loss or damage to other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways; and
(7) Marine protection and indemnity insurance, which is insurance against, or against legal liability of the insured for, loss, damage or expense arising out of, or incident to, the ownership, operation, chartering, maintenance, use, repair or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person.
56-407. "Vehicle insurance" defined.-"Vehicle insurance" is insurance against loss of or damage to any land vehicle or aircraft or any draft or riding animal or to property while contained therein or thereon or being loaded or unloaded therein or therefrom, from any hazard or cause, and against any loss, liability or expense

56-407.1

AGENTS AND CouNSELORs, ETC.

44

resulting from or incident to ownership, maintenance or use of any such vehicle, aircraft or animal; together with insurance against accidental death or accidental injury to individuals, including the named insured, while in, entering, alighting from, adjusting, repairing, cranking, or caused by being struck by a vehicle, aircraft or draft or riding animal, if such insurance is issued as a part of insurance oh the vehicle, aircraft or draft or riding animal; and provisions of medical, hospital, surgical, disability benefits to injured persons, funeral and death benefits to dependents, beneficiaries or personal representatives of persons killed, irrespective of legal liability of the insured, when issued as an incidental coverage with or supplemental to liability insurance.
56-407.1. Requirements for motor vehicle liability policies; coverage of claims against uninsured motorist.-( a)
No automobile liability policy or motor vehicle liability policy shall be issued or delivered in this State to the owner of such vehicle, or shall be issued or delivered by any insurer licensed in this State, upon any motor vehicle then principally garaged or principally used in this State, unless it contains an indorsement or provisions undertaking to pay the insured all sums which he shall be legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle, within limits exclusive of interests and costs which shall be no less than $10,000 because of bodily injury to or death of one person in any one accident, and, subject to such limit for one person, $20,000 because of bodily injury to or death of two or more persons in any one accident, and $5,000 because of injury to or destruction of property of the insured: Provided that the coverage for injury to or destruction of property of the insured may provide an exclusion of not more than the first $250 of such loss or damage to any insured in any one accident: Provided, however, that the coverage required under this subsection shall not be applicable where any insured named in the policy shall reject the coverage in writing: and Provided, further, that, Unless the named insured requests such Goverage in writing, such coverage need not be provided in or sup-

45

KINDS OF INSURANCE

56-407.1

plemental to a renewal policy where the named insured had rejected the coverage in connection with a policy previously issued to him by the same insurer.
(b) As used in this section, the term "bodily injury" shall include death resulting therefrom; the term ''prop-
erty of the insured" as used in subsection (a) hereof means the insured motor vehicle and includes the personal property owned by the insured and contained therein; the term "insured'' means the named insured and, while resident of the same household, the spouse of any such named insured, and relatives of either, while in a motor vehicle or otherwise, and any person who uses, with the consent, expressed or implied, of the named insured, the motor vehicle to which the policy applies, and a guest in such motor vehicle to which the policy applies, or the personal representatives of any of the above; and the term "uninsured motor vehicle" means a motor vehicle, other than a motor vehicle owned by or furnished for the regular Use of the name insured, the spouse of any such named insured, and whiie residents of the same household, the reiatives of either, as to which there is (i) no bodily injury liability insurance and property damage liability insurance or as to which there is bodily injury liability insurance and property damage liability insurance with limits less than the amounts specified in subsection (a) of this section, but it will be considered uninsured only for that amount between the limit carried and the limit required in subsection (a) of this section, or (ii) there is such insurance in existence but the insurance company writing the same has legally denied coverage thereunder, or is unable, because of being insolvent, to make payment with respect to the legal liability of its insured within the limits specified in subsection (a) of this section, or (iii) there is no bond or deposit of cash or securities in lieu of such bodily injury and property damage liability insurance. A motor vehicle shall be deemed to be uninsured if the owner or operator thereof be unknown: Provided, that recovery under the indorsement or provisions shall be subject to the conditions hereinafter set forth: Provided, that, in order for the insured to recover under the

56-407.1

UNAUTHORIZED INSURERS, ETC.

46

indorsement where the owner or operator of any motor vehicle which causes bodily injury or property damage to the insured is unknown, actual physical contact must have occurred between the motor vehicle owned or operated by such unknown person and the person or property of the insured.
(c) If the owner or operator of any motor vehicle which causes bodily injury or property damage to the insured be unknown, the insured, or someone on his behalf, or in the event of a death claim, someone on behalf of the party having such claim, in order for the insured to recover under the indorsement, shall report the accident as required by Chapter 92A-6.
(d) In cases where the owner or operator of any vehicle causing injury or damages be known, and either or both be named as defendants in any action for such injury or damages, a copy of such action and all pleadings thereto shall be served as prescribed by law upon the insurance company issuing the policy as though such insurance company were actually named as a party defendant. If either the owner or operator of any vehicle causing injury or damages be unknown, an action may be instituted against the unknown defendant as "John Doe," and a copy of such action and all pleadings thereto shall be served as prescribed by law upon the insurance company issuing the policy as though such insurance company were actually named as a party defendant, and the insurance company shall have the right to file pleadings and take other action allowable by law in the name of John Doe or itself. In any case herein where service upon an insurance company is prescribed, the clerk of the court in which the action is brought shall have same accomplished by issuing a duplicate original copy for the sheriff or marshal to place his return of service in the same form and manner as prescribed by law for a party defendant. The return of service upon the insurance company shall in no case appear upon the original pleadings in such case. In the case of a known owner or operator of such vehicle, either or both of whom is named as a defendant in such action, the insurance company issuing the policy

47

CASUALTY, SuRETY & VEHICLE INSURANCE 56-407.1

shall have the right to file pleadings, and take other action

allowable by law in the name of either the known owner

or operator or both or itself.



A motor vehicle shall not be deemed to be an uninsured

motor vehicle within the meaning of this section when the

owner or operator of such motor vehicle has deposited

security, pursuant to the provisions of Section 9 of an Act

providing for the giving of security by owners and oper-

ators of motor vehicles [Chapter 92A-6], in the amount

of $10,000 where only one person was injured or killed,

$20,000 where more than one, or $5,000 for property

damage.

(e) An insurer paying a claim under the indorsement

or provisions required by subsection (a) of this section

shall be subrogated to the rights of the insured to whom

such claim was paid against the person causing such

injury, death or damage to the extent that payment was

made, including the proceeds recoverable from the assets

of the insolvent insurer: Provided, that the bringing of an

action against the unknown owner or operator as John

Doe, or the conclusion of such an action, shall not con-

stitute a bar to the insured, if the identity of the owner

or operator who caused the injury or damages complained

of becomes known, bringing an action against the owner

or operator theretofore proceeded against as John Doe:

Provided, that any recovery against such owner or op-

erator shall be paid to the insurance company .to the

extent that such insurance company paid the named

insured in the action brought against such owner or

operator as John Doe, except that such insurance company

shall pay its proportionate part of any reasonable costs

and expense incurred in connection therewith, including

reasonable attorneys' fees. Nothing in an indorsement or

provisions made under this section nor any other provision

of law shall operate to prevent the joining in an action

against John Doe of the owner or operator of the motor

vehicle causing such injury as a party defendant, and

such joinder is hereby specifically authorized.

(f) No such indorsement or provisions shall contain a

provision requiring arbitration of any claim arising under

56-408

KINDS OF INSURANCE

48

any such indorsement or provisions, nor may anything be required of the insured, subject to the other provisions of the policy or contract, except the establishment of legal liability, nor shall the insured be restricted or prevented, in any manner, from employing legal counsel or instituting legal proceedings.
(g) Before a motor vehicle shall be deemed to be uninsured because of the insolvency of an insurance company, under subsection (b) (ii), an insurer under the uninsured motorists indorsement provisions of this section must be given notice within a reasonable time by its insured of the pendency of any legal proceeding against such insurance company of which he may have knowledge and before such insured enters into any negotiation or arrangement with such insurance company and before such insurer is prejudiced by any action or nonaction of the insured with respect to the determinations of the insolvency of such insurance company.
(g.l) The indorsement or provisions of such policy providing the coverage required by this section may contain provisions which exclude any liability of the insurer for injury or destruction of property of the insured for which he has been compensated by other property or physical damage insurance.
56-408. "Casualty insurance" defined.-"Casualty insurance" includes vehicle insurance as defined in section 56-407 and accident and sickness insurance as defined in section 56-404, and in addition includes:
(1) Liability insurance, which is insurance against legal liability for the death, injury, or disability of any human being, or for damage to property; and provision of medical, hospital, surgical, disability benefits to injured persons and >funeral and death benefits to dependents, beneficiaries or personal representatives of persons killed irrespective of legal liability of the insured, when issued as an incidental coverage with or supplemental to liability insurance;

49

KINDS OF INSURANCE

56-408

(2) Workmen's compensation and employers' liability insurance, which is insurance of the obligations accepted by, imposed upon, or assumed by employers for death, disablement, or injury of employees;
(3) Burglary and theft insurance, which is insurance against loss or damage by burglary, theft, larceny, robbery, forgery, fraud, vandalism, malicious mischief, confiscation, wrongful conversion, disposal, concealment, mysterious disappearance, destruction of money or securities or from any attempt at any of the foregoing, including supplemental coverages for medical, hospital, surgical, and funeral expenses incurred by the named insured or other person as a result of bodily injury during the commission of a burglary, robbery or theft by another; also insurance against loss of or damage to monies, coins, bullion, securities, notes, drafts, acceptances or any other valuable papers and documents, resulting from any cause ;
(4) Personal property floater insurance, which is insurance upon personal effects against loss or damage from any cause ;
(5) Glass insurance, which is insurance against loss or damage to glass, including its lettering, ornamentation and fittings;
( 6) Boiler and machinery insurance, which is insurance against any liability and loss or damage to property or interest resulting from accidents to or explosion of boilers, pipes, pressure containers, machinery or apparatus, and to make inspection of and issue certificates of inspection upon boilers, machinery and apparatus of any kind, whether or not insured;
(7) Leakage and fire extinguishing equipment insurance, which is insurance against loss or damage to any property or interest caused by the breakage or leakage of sprinklers, hoses, pumps and other fire extinguishing

56-408.1

KINDS OF INSURANCE

50

equipment or apparatus, water pipes and containers, or by water entering through leaks or openings in buildings, and insurance against loss or damage to such sprinklers, hoses, pumps and other fire extinguishing equipment or apparatus.
(8) Credit insurance, which is insurance against loss or damage resulting from failure of debtors to pay their obligations to the insured;
(9) Malpractice insurance, which is insurance against legal liability of the insured, and against loss, damage or expense incidental to a claim of such liability, and including medical, hospital, surgical, and funeral benefits to injured persons, irrespective of legal liability of the insured, arising out of the death, injury or disablement of any person, or arising out of damage to the economic interest of any person, as the result of negligence in rendering expert, fiduciary, or professional services;
(10) Entertainments insurance, which is insurance indemnifying the producer of any motion picture, television, radio, theatrical, sport, spectacle, entertainment or similar production, event or exhibition against loss from interruption, postponement or cancellation thereof due to death, accidental injury or sickness of performers, participants, directors or other principals; and
( 11) Miscellaneous insurance, which is insurance against any other kind of loss, damage or liability properly a subject of insurance and not within any other kind of insurance as defined in this Title, if such insurance is not disapproved by the Commissioner as being contrary to law or public policy.
56-408.1. Effect of provision in policy permitting insurer to settle or compromise claims.-Any provision in a liability policy of insurance which provides that the insurer shall have the right to compromise or settle claims of third persons against the insured without the consent

51

KINDS OF INSURANCE

56-409

of the insured shall be deemed to create, as between the insurer and the insured, the relationship of an idependent contractor so that the insured shall not be precluded from asserting a claim or cause of action against third persons, notwithstanding the settlement by the insurer of such claims of third persons, unless the insured shall previously have consented thereto in writing: Provided that in all such cases where the insurer shall settle the claims of third persons against the insured, without such written consent, it shall be the duty of the insurer to inform such third persons in writing of the lack of consent of the insured and that the insured is not thereby precluded from the further assertion of claims against such third persons, before taking from such third persons any release, covenant not to sue, or other settlement; and upon the failure of the insurer to give such notice to such third persons of the lack of consent of such insurer, such release, covenant not to sue or other settlement shall be of no effect, null and void.
If such third persons execute a release, covenant not to sue, or other instrument in settlement of their claims after such notice of the lack of consent of the insured, the same shall be deemed and construed as a bar to the further assertion by such third persons of such claims against all persons whomsoever, and such third persons shall not plead such release, covenant not to sue or settlement in bar of any action or claim asserted by such insured.
56-409. "Surety insurance" defined.-"Surety insurance" includes: (1) Fidelity insurance, which is insurance guaranteeing the fidelity of persons holding positions of public or private trust;
(2) Insurance guaranteeing the performance of contracts, other than insurance policies, and guaranteeing and executing bonds, undertakings and contracts of suretyship; and
(3) Insurance indemnifying banks, bankers, brokers,

56-410

KINDS OF INSURANCE

52

financial or moneyed corporations or associations against loss, resulting from any cause, of bills of exchange, notes, bonds, securities, evidences of debt, deeds, mortgages, warehouse receipts or other valuable papers, documents, money, precious metals and articles made therefrom, jewelry, watches, necklaces, bracelets, gems, precious and semi-precous stones, including any loss while the same are being transported in armored motor vehicles, or by messenger, but not including any other risks of transportation or navigation; also insurance against loss or damage to such an insured's premises or to his furnishings, fixtures, equipment, safes and vaults therein, caused by burglary, robbery, theft, vandalism or malicious mischief, or any attempt thereat.

56-410. "Title insurance" defined.-"Title insurance"

is insurance of owners of real property or others having

an interest therein, or liens or encumbrances thereon,

against loss by encumbrance, or defective titles, or in-

validity, or adverse claim to title, or unmarketability

of title by reason of encumbrance or defects not ex-

cepted in the insurance contract, which contract shall

be written only upon evidence or opinion of title obtained

and preserved by the insurer.



56-411. [Reserved].

56-412. Limit of risk.- ( 1) No insurer shall retain any risk on any one subject of insurance, whether located or to be performed in Georgia or elsewhere, in an amount exceeding ten (10%) percent of its surplus to policyholders.

(2) A "subject of insurance" for the purposes of this section, as to insurance against fire and hazards other than catastrophic hazards, includes all properties insur-
ed by the same insurer which are customarily considered by underwriters to be subject to loss or damage from the same fire or other such hazard insured against.

KIND S OF IN SURANCE

56-413

(3) Reinsurance authorized by section 56-413 shall be deducted in determining risk retained. As to surety risks, deduction shall also be made of the amount assumed by any established incorporated cosurety and the value of any security deposited, pledged, or held subject to the surety's consent and for the surety's protection.
(4) "Surplus to policyholders" for the purpose of this section shall be deemed to include any voluntary re&erves which are not required pursuant to law, and shall be determined from the last sworn statement of the insurer on file with the Commissioner or by the last report of examination by the Commissioner, whichever is the more recent at the time of assumption of such risk.
(5) As to alien insurers, this section shall relate only to risks and surplus to policyholders of the insurer's United States branch.
(6) This section shall not apply. to life insurance, accident and sickness insurance, annuities, title insurance, insurance of ocean marine risks or marine protection and indemnity risks, workmen's compensation insurance, employers' liability coverages, nor to any policy .or type of coverage as to which the maximum possible loss to the insurer is not readily ascertainable on issuance of the policy.
56-413. Authorized reinsurance.-( 1) An insurer shall reinsure its risks, or any part thereof, only in solvent insurers having surplus to policyholders or trusteed funds on deposit in the United States for the benefit of their policyholders not less in amount than the paid-in capital required under this Title of a domestic stock insurer authorized to transact like kinds of insurance.
(2) An insurer shall so reinsure in such alien insurers only as either (a) are authorized to transact insurance in at least one state of the United States, or (b) have in the United States a duly authorized attorney-in-fact

56-413

KINDS OF iNS URANCE

54

to accept service of legal process against the insurer as to any liability which might arise on account of such reinsurance, or (c) may be approved by the Commissioner. In the event reinsurance is placed which is not in compliance with the foregoing provisions, the ceding insurer shall not be allowed credit for such reinsurance either as an asset or deduction from liability, nor may it increase any amounts it is authorized to have at risk because of such reinsurance.
(3) No credit shall be allowed, as an asset or as a deduction from liability, to any ceding insurer for reinsurance nor increase the amount it is authorized to have at risk unless the reinsurance is in insurers either authorized to do business in this State, or which have been approved by written order of the Department filed in its office and which order has not been subsequently disapproved; Provided, however, that such credit shall be allowed for reinsurance ceded to unauthorized alien assuming insurers, if such insurers have maintained in the United States for not less than ten (10) years immediately preceding such reinsurance a trust fund of not less than fifty million ($50,000,000) dollars available for the purpose of protecting policyholders in the United States. Nor shall such credit be allowed unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under the contracts reinsured without diminution because of the insolvency of the ceding insurer.
(4) This section shall not apply to insurance of ocean marine risks or marine protection and indemnity risks.
(5) Notwithstanding the provisions of this Code, full credit shall be allowed a ceding insurer, as an asset or as a deduction from liability, for all reinsurance which may be in effect or which may be hereafter effected under any contract of reinsurance in effect on the 31st day of December 1959, and any continuations or renewals of such contract of reinsurance. Provided, however, that no new insurance risk shall be ceded after two years from

55

CAsUALTY, SuRETY & VEHICLE INSURANCE 56-500

the effective date of this Title unless such reinsurance contract meets all the standards set forth in this Title.

CHAPTER 56-5 RATES-CASUALTY, SURETY, VEHICLE, PROPERTY, MARINE, AND TRANSPORTATION
INSURANCE Sec. 56-501. Purpose and intent of ,Chapter. 56-502. "Rating organization" defined. 56-503. "Advisory organization" defined. 56-504. "Member" and "subscriber" defined. 56-505. (Reserved). 56-506. Application of Chapter. 56-507. Standards applicable to rates. 56-508. Insurers authorized to act in concert. 56-509. Same; admitted insurers with common owner-
ship or management; matters relating to cosurety bonds. 56-510. Use of rates, rating systems, underwriting rules

56-511. 56-512. 56-513.

and policy or bond forms of rating or advisory organizations; agreements to adhere thereto. Exchange of information or experience data; consultation with rating organizations and insurers. Agreements for apportionment of casualty insurance; approval of commissioner; review of practices of adherents; revocation of approval. Joint underwriters and reinsurers; conduct of

56-514.

operations in State; membership of subscription to organization, etc., not complying with Chapter. Rating organizations; existing licenses con-

56-515. 56-516.
56-517. 56-518.

tinued. Same; evidence prerequisite to license. Examination of application and investigation
of applicant; issuance of license. License fee. Rules governing eligibility for membership.

56-500

CASUALTY, SURETY & VEHICLE INSURANCE

56

56-519. Insurers with common ownership or management.
56-520. Advisory organizations. 56-521. Joint underwriting and joint reinsurance. 56-522. Maintenance of records; necessity; contents;
compliance with section; place of maintenance. 56-522.1. Filing of rates, rating plans, rating systems, underwriting rules. 56-523. Examination of rating and advisory organizations, joint underwriters and reinsurers; acceptance of report from another State; compliance with Chapter. 56-524. Examination of admitted insurers. 56-525. Examination of officers, managers, agents and employees; exhibition of books, etc. 56-526. Payment of cost of examination. 56-527. Review of rate, rating plan or system, or underwriting rule; request; failure to grant within 30 days as rejection; filing complaint and request for hearing with commissioner; authority of commissioner. 56-528. Noncompliance of rate, rating plan or system; notice by commissioner. 56-529. Same; hearing, notice; hearing not to include additional subjects. 56-530. Same; issuance of orders; suspension or revocation of certificate of authority or license. 56-531. Same; failure to comply with order; suspension or revocation of license or certificate. 56-532. Same; conduct of proceedings; powers of commissioner. 56-533. (Reserved). 56-534. Information not to be willfully withheld. 56-535. Rebates prohibited, exclusion of commissions, dividends, etc. 56-536. Failure to comply with final order of commissioner; penalty; collection; to be in addition to other penalties; wilful violation of Chapter misdemeanor.

57

CASUALTY, SuRETY & VEHICLE INSURANCE 56-502

56-537. Payment of dividends, etc., not prohibited or regulated; plan for payment not rating system.
56-538. Acts, etc., done by authority of Chapter not violation of other laws.
56-539. Collusion to fix rates; penalty. 56-501. Purpose and intent of Chapter.-~-The purpose
of this Chapter is to promote the public welfare by regulating insurance rates as herein provided to the end that they shall not be excessive, inadequate or unfairly discriminatory, to authorize the existence and operation of qualified rating organizations and advisory organizations and require that specified rating services of such rating organizations be generally available to all admitted insurers, and to authorize cooperation between insurers in rate making and other related matters.
It is the express intent of this Chapter to permit and encourage competition between insurers on a sound financial basis to the fullest extent possible. However, nothing in this Chapter is intended, or should be construed, to restrict the commissioner in any way, on his own motion or otherwise, to take any affirmative action by rule, reg-
ulation or administrative determination in a particular case, cases, or class of cases, which he may deem necessary to protect the public's interest in maintaining the standards prescribed in section 56-507, and the provisions of sections 56-527 through 56-530, particularly, shall in nowise be viewed as exhaustive or restrictive of the powers or procedures available to him for this purpose.
56-502. "Rating organization" d'efined.-~ In this Chapter "rating organization" means every person, other than an admitted insurer, whether located within or outside this State, who has as his object or purpose the making of rates, rating plans or rating systems. Two or more admitted insurers which act in concert for the purpose of making rates, rating plans or rating systems, and which do not operate within the specific authorizations contained in sections 56-509, 56-511, 56-512, 56-522 and 56523, shall be deemed to be a rating organization. No single insurer shall be deemed to be a rating organization. (Acts

56-503 CAsUALTY, SuRETY & VEHICLE INsURANCE

58

1967, pp. 684, 688.) 56-503. "Advisory organization" defined. - In this
Chapter "advisory organization" means every person, other than an admitted insurer, whether located within or outside this State, who prepares policy forms or makes underwriting rules incident to but not including the making of rates, rating plan or rating systems, or which collects and furnishes to admitted insurers or rating organizations loss or expense statistics fr other statistical information and data and acts in an advisory, as distinguished from a rate making, capacity. No duly authorized attorney at law acting in the usual course of his profesion shall be deemed to be an advisory organization.
56-504. "Member" and "subscriber" defined.-Unless otherwise apparent from the context, in this Chapter:
(a) "Member'' means an insurer who participates in or is entitled to participate in the management of a rating, advisory or other organization.
(b) "Subscriber" means an insurer which is furnished at its request (1) with rates and rating manuals by a rating organization of which it is not a member, or (2) with advisory services by an advisory organization of which it is not a member. (Acts 1967, pp. 684, 688.)
56-505. (Reserved). 56-506. Application of Chapter.-The provisions of this Chapter shall apply to all insurance on risks or on operations in this State, except: (a) Reinsurance, other than joint reinsurance to the extent stated in section 56-521. d>) Life insurance. (c) Accident and sickness insurance. (d) Insurance of vessels or craft, their cargoes, marine builders' risks, marine protection and indemnity, or other risks commonly insured under marine, as distinguished from transportation insurance policies. Inland marine insurance shall be deemed to include insurance now or hereafter defined by statute, or by interpretation thereof, or, if not so defined or interpreted, by ruling of the commissioner or as established by general custom of the business, as inland marine insurance.

59

CASUALTY, SURETY & VEHICLE INSURANCE 56-507

(e) Insurance against loss of or damage to aircraft, insurance of hulls of aircraft, including their accessories and equipment, or insurance against liability arising out of the ownership, maintenance or use of aircraft.
(f) Title insurance. (g) Workmen's compensation insurance: Provided, however, that the filings required by section 114-609 may be made by a rating organization licensed in accordance with sections 56-514 to 56-517, inclusive. This Chapter shall apply to all insurers, including stock
and mutual companies, Lloyds associations and reciprocal and inter-insurance exchanges which, under any provisions of the laws of this State, write any of the kinds of insurance to which this Chapter applies.
56-507. Standards applicable to rate.-The following standards shall apply to the making and use of rates pertaining to all classes of insurance to which the provisions of this Chapter are applicable:
(a) Rates shall not be excessive or inadequate, as herein defined, nor shall they be unfairly discriminatory.
No rate shall be held to be excessive unless (1) such rate is unreasonably high for the insurance provided and (2) a reasonable degree of competition does not exist in the area with respect to the classification to which such rate is applicable.
No rate shall be held inadequate unless (1) it is unreasonably low for the insurance provided, and (2) continued use of it would endanger solvency of the insurer, or unless (3) the use of such rate by the insurer using same has, or will, if continued, tend to destroy competition or create a monopoly.
(b) Consideration shall be given, to the extent applicable, to past and prospective loss experience within and outside this State, to conflagration and catastrophe hazards, to a reasonable margin for underwriting profit and contingencies, to past and prospective expenses both Country-wide and those specially applicable to this State, and to all other factors, including judgment factors, deemed relevant within and outside this State; and in the case of fire insurance rates, consideration may be

56-508 CAsVALTY, SuRETY & VEHICLE INSURANCE

60

given to the experience of the fire insurance business during the most recent five-year period for which such experience is available.
Consideration may also be given in the making and use of rates to dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers.
(c) The systems of expense provisions included in the rates for use by any insurer or group of insurers may differ from those of other insurers or groups of insurers to reflect the operating methods of any such insurer or group with respect to any kind of insurance, or with respect to any subdivision or combination thereof.
(d) Risks may be grouped by classifications for the establishment / of rates and minimum premiums. Classification rates may be modified to produce rates for individual risks in accordance with rating plans which establish standards for measuring variations in hazards or expense provisions, or both. Such standards may measure any difference among risks that have a probable effect upon losses or expenses. Classifications or modifications of classifications of risks may be established based upon size, expense, management, individual experience, location or dispersion of hazard, or any other reasonable considerations. Such classifications and modifications shall apply to all risks under the same or substantially the same circumstances or conditions.
(e) Nothing contained in this section or elsewhere in this Chapter shall be construed to repeal or modify the provisions of Chapter 56-7 of the Georgia Insurance Code relating to unfair trade practices, and any rate, rating ~ classification, rating plan or schedule, or variation thereof, established in violation of said Chapter, shall, in addition to the consequences stated in said Chapter 56-7 or elsewhere, be deemed violative of this section.
Editorial Note.-The word "Country-wide" has been substituted for "county-wide," which appears in subsection (b) as printed in the Act, since this appears to meet
the legislative intent. 56-508. Insurers authorized to act in concert.-Subject

61

CASUALTY, SuRETY & VEHICLE INsURANCE 56-510

to and in compliance with the provisions of this Chapter authorizing insurers to be members or subscribers of rating or advisory organizations or to engage in joint underwriting or joint reinsurance, two or more insurers may act in concert with each other and with others with respect to any matters pertaining to the making of rates or rating systems, the preparation or making of insurance policy or bond forms, underwriting rules, surveys, inspections and investigations, the furnishing of loss or expense statistics or other information and data or carrying on of research.
56-509. Same; admitted insurers with common own-
ership or management; matters relating to co-surety
bonds.-With respect to any matters pertaining to the making of rates or rating systems, the preparation or making of insurance policy or bond forms, underwriting rules, surveys, inspections and investigations, the furnishing of loss or expense statistics or other information and data, or carrying on of research, two or more admitted insurers having a common ownership or operating in this State under common management or control are hereby authorized to act in concert between or among themselves the same as if they constituted a single insurer, and to the extent that such matters relate to co-surety bonds, two or more admitted insurers executing such bonds are hereby authorized to act in concert between or among themselves the same as if they constituted a single insurer.
56-510." Use o.f rating, rating systems, underwriting rules
and policy or bond forms of rating or advisory organiza-
tions; agreements to adhere thereto.-Members and subscribers of rating or advisory organizations may use the rates, rating systems, underwriting rules or policy or bond form of such organizations, either consistently or intermittently, but, except as provided in sections 56-509, 56512, and 56-521 and 56-522, shall not agree with each other-or rating organizations or others to adhere thereto. The fact that two or more admitted insurers, whether or not members or subscribers of a rating or advisory organization, use, either consistently or intermittently, the rates or rating systems made or adopted by a rating organiza-

56-511 CASUALTY, SURETY & VEHICLE INSURANCE

62

tion, or the underwriting rules or policy or bond forms prepared by a rating or advisory organization, shall not be sufficient in itself to support a finding that an agreement to so adhere exists, and may be used only for the purpose of supplementing or explaining any competent evidence of the existence of any such agreement.
56-511. Exchange of information or experience data;
consultation with rating organizations and insurers.Cooperation among rating organizations or among rating organizations and insurers in rate making or. in other matters within the scope of this Chapter is hereby authorized. The commissioner may review such cooperative activities and practices and if, after a hearing, he finds that any such activity or practice is unfair or unreasonable or otherwise inconsistent with the provisions of this Chapter, he may issue a written order specifying in what respects such activity or practice is unfair or unreasonable or otherwise inconsistent with the provisions of this Chapter, and requiring the discontinuance of such activity or practice. (Acts 1967, pp. 684, 692.)
56-512. Agreements for apportionment of casualty in-
surance; approval of commissioner; review of practices of adherents; revocation of approvaL-Agreements may be made among admitted insurers with respect to the equitable apportionment among them of casualty insurance
which may be afforded applicants who are in good faith entitled to but who are unable to procure such insurance through ordinary methods, and with respect to the use of reasonable rate modifications for such insurance, such agreements to be subject to the approval of the commissioner.
All such agreements shall be submitted in writing to the commissioner for his consideration and approval, together with such information as he may reasonably require. The commissioner shall approve only such agreements as are found by him to contemplate (a) the use of rates which meet the standards prescribed by this Chapter and (b) activities and practices that are not unfair, unreasonable or otherwise inconsistent with the provisions of this Chapter.

63

CASUALTY, SuRETY & VEHICLE INSURANCE 56-514

At any time after such agreements are in effect the commissioner may review the practices and activities of the adherents to such agreements and if after a hearing upon not less than 10 days notice to such adherents he finds that any such practice or activity is unfair or unreasonable, or is otherwise inconsistent with the provisions of this Chapter, he may issue a written order to the parties to any such agreement specifying in what respect such act or practice is unfair or unreasonable or otherwise inconsistent with the provisions of this Chapter and requiring the discontinuance of such activity or practice. For good cause, and after hearing upon not less than 10 days notice to the adherents thereto, the commissioner may revoke approval of any such agreement.
56-513. Joint underwriters and reinsurers; conduct of
operations in State; membership or subscription to organization, etc., not complying with Chapter.-Upon compliance with the provisions of this Chapter applicable thereto, any rating organization, advisory organization, and any group, association or other organization of admitted insurers which engages in joint underwriting or joint reinsurance through such organization, or by standing agreement among the members thereof, may conduct operations in this State. As respects insurance ris~s or
operations in this State, no insurer shall be a member
or subscriber of any such organization, group or association that had not complied with the provisions of this Chapter applicable to it.
56-514. Rating organizations; existing licenses continued.-No rating organization shall conduct its operations in this State without first filing with the commissioner a written appplication for and securing a license to act as a rating organization: Provided, that a license issued to a rating organization pursuant to section 56-506a or section 56-506b of the prior law shall continue in effect until the expiration date of such license or until the effective date [July 1, 1967] of this Chapter, whichever is later. Any rating organization may make application for and obtain a license as a rating organization if it shall meet the requirements for license set forth

56-515 CASUALTY, SuRETY & VEHICLE INs u RANCE

64

in this Chapter. Every such rating organization shall file with its application (a) a copy of its constitution, its articles of incorporation, agreement or association, and of its bylaws, rules and regulations governing the conduct of its business, all duly certified by the custodian of the originals thereof, (b) a l'ist of its members and subscribers, (c) the na):lle and address of a resident of this State upon whom notices or. orders of the commissioner or process affecting such rating organization may be served, and (d) a statement of its qualifications as a rating organization.
The fee for filing an application for license as a rating organization is $100 lawful money of the United States,
payable in advance to the commissioner. 56-515. Sa~e; evidence prerequisite to license.-To
obtain and retail). , a license, a .rating organization shall provide satisfac~ory evidence to the commissioner that it will:
(a) Permit any admitted insurer to l?ecome a member or a subscriber to such rating organiz~tion at a reasonable cost and witho].lt discrimination, or withdraw therefrom.
(b) Neither have nor adopt any rule or exact any agreement, the effect of.which would be to require any member or subscriber, as a condition to membership or subscribership, to adhere to its rates, rating plans, rating systems, underwriting rules, or policy or bond forms.
(c) Neither adopt any rule nor exact any agreement the effect of which would be to prohibit or regulate the payment of dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers.
(d) Neither practice nor sanction any plan or act of boycott, coercion or intimidation.
(e) Neither enter into nor sanction any contract or act by which any person is restrained from lawfully engaging in the insurance business.
(f) Notify the commissioner promptly of every change in its constitution, its articles of incorporation, agreement or association, and of its bylaws, rules and regulations

65

CAsuALTY, SuRETY & VEHICLE INsuRANCE 56-517

governing the conduct of its business; its list of members and subscribers; and the name and address of the resident of this State designated by it upon whom notices or orders of the commissioner or process affecting such organization may be served.
(g) Comply with the provisions of section 56-522. 56-516. Examination of application and investigation of applicant; issuance of license. - The commissioner shall examine each application for license to act as a rating organization and the documents filed therewith and may make such further investigation of the applicant, its affairs and its proposed plan of business as he deems desirable. The commissioner shall issue the license applied for within 60 days of its filing with him if from such examination and investigation he is satisfied that: (a) The business reputation of the applicant and its officers is good. (b) The facilities of the applicant are adequate to enable it to furnish the services it proposes to furnish. (c) The applicant and its proposed plan of operation conform to the requirements of this Chapter. Otherwise, but only after hearing upon notice, the commissioner shall in writing deny the application and notify the applicant of his decision and his reasons therefor. The commissioner may grant an application in part only and issue a license to act as a rating organization for one or more of the classes of insurance or subdivisions thereof or class of risk or a part or combination thereof as are specified in the application if the applicant qualifies for only a portion of the classes applied for. Licenses issued pursuant to this section shall remain in effect until revoked as provided in this Chapter. 56-517. License fee.-Notwithstanding the provision of section 56-516, each rating organization possessing a license of indefinite term pursuant to such section shall owe and pay to the commissioner an annual fee of $50 in lawful money of the United States in advance on account of such license until its final termination. Such fee

56-5 18 CASUALTY, SURETY & VEHICLE INSURANCE

66

shall be for periods commencing on July 1, 1968, and on
each July 1 thereafter, and ending on June 30, 1969, and each June 30 thereafter, and shall be due and payable on March 1, 1968, and on each March 1 thereafter, and shall be delinquent on April 1, 1968, and each April 1 thereafter.
56-518. Rules governing eligibility for membership.Subject to the approval of the commissioner licensed rating organizations may make reasonable rules governing eligibility for membership.
56-519. Insurers with common ownership or management.- If two or more insurers having a common ownership or operating in this State under common management are admitted for the classes or types of insurance for which a rating organization is licensed to make rates, the rating organization may require as a condition to membership or subscribership of one or more that all such insurers shall become members or subscribers. (Acts 1967, pp. 684, 697.)
56-520. Advisory organizations.-No advisory organization shall conduct its operations in this State unless and until it has filed with the commissioner (a) a copy of its constitution, articles of incorporation, agreement or association, and of its bylaws, or rules and regulations governing its activities, all duly certified by the custodian of the originals thereof, (b) a list of its members and subscribers, and (c) the name and address of a resident of this State upon whom notices or orders of the commissioner or process may be served.
Every such advisory organization shall notify the commissioner promptly of every change in its constitution, its articles of incorporation, agreement or association, and of its bylaws, rules and regulations governing the conduct of its business; its list of members and subscribers; and the name and address of the resident of this State designated by it upon whom notices or orders of the commissioner or process affecting such organization may be served.
No such advisory organization shall engage in any unfair or unreasonable practice with respect to such activi-

67

CAsUALTY, SuRETY & VEHICLE INSURANCE 56-522

ties. 56-521. Joint underwriting and joint reinsurance.
Every group, association or other organization of insurers which engages in joint underwriting or joint reinsurance through such group, association or organization or by standing agreement among the members thereof shall file with the commissioner (a) a copy of its constitution, its articles of incorporation, agreement or association, and of its bylaws, rules and regulations governing its activities, all duly certified by the custodian of the originals thereof, (b) a list of its members, and (c) the name and address of a resident of this State upon whom notices or orders of the commissioner or process may be served.
Every such group, association or other organization shall notify the commissioner promptly of every change in its constitution, its articles of incorporation, agreement or association, and its bylaws, rules and regulations governing the conduct of its business; its list of members; and the name and address of the resident of this State designated by it upon whom notices or orders of the commissioner or process affecting such group, association or organization may be served.
No such group, association or organization shall engage in any unfair or unreasonable practice with respect to such activities.
56-522. Maintenance of records; necessity; contents;
compliance with section; place of maintenance.-Every
insurer, rating organization or advisory organization and every group, association or other organization of insurers
which engages in joint underwriting or joint reinsurance shall maintain reasonable records, of the type and kind reasonably adapted to its method of operation, of its experience or the experience of its members and of the data, statistics or information collected or used by it in connection with the rates, rating plans, rating systems, underwriting rules, policy or bond forms, surveys or inspections made or used by it so that such records will be available at all reasonable times to enable the commissioner to determine whether such organization, insurer, group or association and, in the case of an insurer or rating orga-

56-522.1

RATES- PROPERTY, MARINE, ETC.

68

nization, every rate, rating plan and rating system made

or used by it complies with the provisions of this Chapter

applicable to it. The maintenance of such records in the

office of a licensed rating organization of which an insurer

is a member or subscriber will be sufficient compliance

with this section for any insurer maintaining membership

or subscribership in such organization, to the extent that

the insurer uses the rates, rating plans, rating systems or

underwriting rules of such organization. Such records

shall be maintained in an office within this State and shall

be made available for examination or inspection by the

commissioner at any time.

Each insurer shall maintain statistics under statistical

plans compatible with the rating plans used. An insurer

may report its statistics through a recognized statistical

agency or advisory organization.

56-522.1. Filing of rates, rating plans, rating systems,

underwriting rules.-Every insurer shall maintain with

the commissioner copies of the rates, rating plans, rating

systems, underwriting rules, policy or bond forms used

by it. The maintenance of rates, rating plans, rating sys-

tems, underwriting rules and policy or bond forms with

the commissioner by a licensed rat!ng organization of

which an insurer is a member or subscriber will be suf-

ficient compliance with this section for any insurer main-

taining membership or subscribership in such organiza-

tion, to the extent that the insurer uses the rates, rating

plans, rating systems, underwriting rules, policy or bond

forms of such organization.



56-523. Examination of rating and advisory organiza-

tions, joint underwriters and reinsurers; acceptance of

report from another State; compliance with Chapter.-

The commissioner shall, at least once every five years, and

may as often as may be reasonable and necessary, make

or cause to be made an examination of e~ch licensed rat-

ing organization, and he may, as often as may be reason-

able and necessary, make or cause to be made an examin-

ation of any advisory organization or group, association or

other organization of insurers which engages in joint

underwriting or joint reinsurance.

69

RATE S-PROPERTY, MARINE, ETC.

56-527

In lieu of any such examination the commissioner may accept the report of an examination made by the insurance supervisory official of another State.
In examining any organization, group or association pursuant to this section the commissioner shall ascertain whether such organization, group or association, and, in the case of a rating organization, any rate or rating system made or used by it, complies with the requirements and standards of this Chapter applicable to it.
56-524. Examination of admitted insurers.-The commissioner may, at any reasonable time, make or cause to be made an examination of every admitted insurer transacting any class of insurance to which the provisions of this Chapter are applicable to ascertain whether such insurer and every rate and rating system used by it for every such class of insurance complies with the re-
quirements and standards of this Chapter applicable thereto. Such examination shall not be a part of a periodic general examination participated in by representatives of more than one State.
56-525. Examination o.f officers, managers, agents and employees; exhibition of books, etc.-The officers, manager, agents and employees of any such organization, group, association or insurer may be examined at any time under oath and shall exhibit all books, records, accounts, documents or agreements governing its method of operation, together with all data, statistics and information of every kind and character collected or considered by.such organization, group, association or insurer in the conduct of the operations to which such examination relates.
56-526. Payment of cost of examination.-The reasonable cost of any examination authorized by this Chapter shall be paid by the organization, group, association or insurer to be examined.
56-527. Review of rate; rating plan or system, or un-
derwriting rule; request; failure to grant within 30 days
as rejection; filing complaint and request for hearing with commissioner; authority of commissioner.-Any person aggrieved by any rate charged, rating plan, rating

"I

56-528

RATES-PROPERTY, MARINE, ETC.

70

system, or underwriting rule followed or adopted by an insurer or rating organization may request the insurer or rating organization to review the manner in which the rate, plan, system, or rule has been applied with respect to insurance afforded him. Such request may be made by his authorized representative, and shall be written. If the request is not granted within 30 days after it is made, the requestor may treat it as rejected. Any person aggrieved by the action of an insurer or rating organization in refusing the review requested, or in failing or refusing to grant all or part of the relief requested, may file a written complaint and request for hearing with the commissioner, specifying the grounds relied upon. If the commissioner has information concerning a similar complaint he may deny the hearing. If he believes that probable cause for the complaint does not exist or that the complaint is not made in good faith he shall deny the hearing. Otherwise, and if he finds that the complaint charges a violation of this Chapter and that the complainant would be aggrieved if the violation is proven, he shall proceed as provided in section 56-528.
56-528. Noncompliance of rate, rating plan or system; notice by commissioner.-If after examination of an insurer, rating organization, advisory organization, or group, association or other organization of insurers which engages in joint underwriting or joint reinsurance, or upon the basis of other information, or upon sufficient complaint as provided in section 56-527, the commissioner has good cause to believe that such insurer, organization, group or association, or any rate, rating plan or rating system made or used by any such insurer or rating organization does not comply with the requirements and standards of this Chapter applicable to it, he shall, unless he has good cause to believe such noncompliance is wilful, give notice in writing to such insurer, organization, group or association stating therein, to the extent practicable, in what manner such noncompliance is alleged to exist and specifying therein a reasonable time, not less than 10 days thereafter, in which such noncompliance may be corrected.

71

RATES- PROPERTY, MARINE, ETC.

56-530

56-529. Same; hearing; notice; hearing not to include additional subjects.- If the commissioner has good cause to believe such noncompliance to be wilful, or if within the period prescribed by the commissioner in the notice
required by section 56-528 the insurer, organization, group or association does not make such changes as may be necessary to correct the noncompliance specified by the commissioner or establish to the satisfaction of the commissioner that such specified noncompliance does not exist, then the commissioner may hold a public hearing in connection therewith, provided that within a reasonable period of time, which shall be not less than 10 days before the date of such hearing, he shall mail written notice specifying the matters to be considered at such hearing to such insurer, organization, group or association. If no notice has been given as provided in section 56-528 such notice shall state therein, to the extent practicable, in what manner such noncompliance is alleged to exist. The hearing shall not include any additional subjects not specified in the notices required by section 56-528 or this section.
56-530. Same; issuance of orders; suspension or revocation of certificate of authority or license.-lf after a hearing pursuant to section 56-529, the commissioner finds:
(a) That any rate, rating plan or rating system violates the provisions of this Chapter applicable to it, he may issue an order to the insurer or rating organization which has been the subject of the hearing specifying in what respects such violation exists and stating when, within a reasonable period of time, the further use of such rate or rating system by such insurer or rating organization in contracts of insurance made thereafter shall be prohibited.
(b) That an insurer, rating organization, advisory organization, or a group, association or other organization of insurers which engages in joint underwriting or joint reinsurance, is in violation of the provisions of this Chapter applicable to it other than the provisions dealing with rates, rating plans or rating system, he may issue an order to such insurer, organization, group or association which

56-531

RATES-PROPERTY, MARINE, ETC.

72

has been the subject of the hearing specifying in what respects such violation exists and requiring compliance within a reasonable time thereafter.
(c) That the violation of any of the provisions of this Chapter applicable to it by any insurer or rating organization which has been the subject of hearing was wilful, he may suspend or revoke, in whole or in part, the certificate of authority of such insurer or the license of such rating organization with respect to the class of insurance which has been the subject matter of the hearing.
(d) That any rating organization has wilfully engaged in any fraudulent or dishonest act or practices, he may suspend or revoke, in whole or in part, the license of such organization in addition to any other penalty provided in this Chapter.
56-531. Same; failure to comply with order; suspension or revocation of license or certificate.- In addition to other penalties provided in this Code, the commissioner may suspend or revoke, in whole or in part, the license of any rating organization or the certificate of authority of any insurer with respect to the class or classes of insurance specified in such order, which fails to comply within the time limited by such order or any extension thereof which the commissioner may grant, with an order of the commissioner lawfully made by him pursuant to section 56-530 and not reversed or modified pursuant to section 56-533.
56-532. Same; conduct o.f proceedings; powers of commissioner.-Except as otherwise provided in this Chapter, all proceedings in connection with the denial, suspension or revocation of a license or certificate of authority under this Chapter shall be conducted in accordance with the
provisions of Chapter 56-2 and the commissioner shall have all the powers granted to him therein.
56-533. (Reserved).
56-534. Information not to be wilfully withheld.-No person, insurer or organization shall wilfully withhold information from, or knowingly give false or misleading information to, the commissioner or to any rating organization, advisory organization, insurer or group, associa-

7',1)

RATES- PROPERTY, MARINE, ETC.

56-536

tion or other organization of insurers, which will affect the rates, rating systems or premiums for the classes of insurance to which the provisions of this Chapter are applicable.
56-535. Rebates prohibited; exclusion of commissions, dividends, etc.- No broker or agent shall knowingly charge, demand or receive a premium for any policy of insurance except in accordance with the provisions of this Chapter. No insNrer or employee thereof and no broker or agent shall pay, allow, or give, or offer to pay, allow, or give, directly or indirectly, as an inducement to insurance, or after insurance has been effected, any rebate, discount, abatement, credit or reduction of the premium named in a policy of insurance, or any special favor or advantage in the dividends or other benefits to accrue thereon, or any valuable consideration or inducement whatever, not specified in the policy of insurance, except to the extent provided for in an applicable filing. No insured named in a policy of insurance nor any employee of such insured shall knowingly receive or accept, directly or indirectly, any such rebate, discount, abatement, credit or reduction of premium, or any such special favor or advantage or valuable consideration or inducement. Nothing in this section shall be construed as prohibiting the payment of commissions or other compensation to duly licensed agents and brokers, nor as prohibiting any insurer from a llowing or returning to its participating policyholders, members, or subscribers, dividends, savings or unabsorbed premium deposits. As used in this section the word "insurance" includes suretyship and the word "policy" includes bond.
56-536. Failure to comply with final order of commissioner; penalty; collection; to be in addition to other penalties; wilful violation of Chapter misdemeanor.(a) Any person, insurer, organization, group or association who fails to comply with a final order of the commissioner under this Chapter shall be liable to the State in an amount not exceeding $50 but if such failure be wilful he or it shall be liable to the State in the amount not exceeding $5,000 for such failure. The commissioner

56-537

UNAUTHORIZED INSURERS, ETC.

74

shall collect the amount so payable and may bring an action in the name of the people of the State of Georgia to enforce collection. Such penalties may be in addition to any other penalties provided by law.
(b) A wilful violation of the provisions of this Chapter by any person is a misdemeanor.
Cross-reference.-Penalty provision, see 56-9901.1. 56-537. Payment of dividends, etc., not prohibited or regulated; plan for payment not rating system.-Nothing in this Chapter shall be construed to prohibit or regulate the payment of dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers. A plan for the payment of dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers shall not be deemed a rating plan or system.
56-538. Acts, etc., done by authority of Chapter not violation of other laws.- No act done, action taken, or agreement made pursuant to the authority conferred by
this Chapter shall constitute a violation of or grounds for prosecution or civil proceedings under any other law of this State heretofore or hereafter enacted which does not specifically refer to insurance.
56-539. Collusion to fix rates; penalty.-In the event any insurer shall in collusion with any other insurer conspire to fix, set or adhere to insurance rates except as expressly sanctioned by this Chapter, such insurer shall be liable to any person damaged thereby for an amount equal to three times the amount of such damage together with the damaged party's attorney's fees.

CHAPTER 56-6

UNAUTHORIZED INSURERS AND UNAUTHORIZED INSURERS PROCESS ACT.

56-601. 56-602.

Representation of unauthorized insurers prohibited. Validity of contracts illegally effectuated; advertising.

75

UNAUTHORIZED INSURERS, ETC.

56-601

56-603. Unauthorized Insurers Process Act; title; interpretation.
56-604. Purpose of Act. 56-605. Acts by insurer which constitute appointment of
Commissioner as agent for service. 56-606. Service upon Commissioner; number of copies;
duties of Commissioner; affidavit of compliance by plaintiff. 56-607. Service upon solicitor, collector or other agent of insurer; procedure. 56-608. Default judgment; necessity for affidavit of compliance. 56-609. Mode of service cumulative. 56-610. Conditions precedent to filing of defenses. 56-611. Recovery of attorney's fees by plaintiff; effect of failure to defend. 56-612. Exemptions from service of process provision. 56-613. Surplus Lines Insurance Law. 56-614. Surplus lines; broker. 56-615. Broker's affidavit. 56-616. Endorsement of contract. 56-617. Validity of surplus line insurance. 56-618. Surplus line brokers; licensing. 56-619. Broker may accept business. 56-620. Solvent insurers required. 56-621. Evidence of the insurance; changes; penalty. 56-622. Record of surplus line brokers; quarterly report. 56-623. Tax on surplus line brokers. 56-624. Penalty for failure to comply. 56-625. Revocation of broker's license. 56-626. Service of process. 56-627. Exemption from Surplus Line Law. 56-628. Report of and tax on independently procured coverages.
56-601. Representation of unauthorized insurers prohibited.-(1) No person shall in Georgia:
(a) Represent an insurer who is not at the time duly authorized to transact insurance in this State, in the solicitation, negotiation or effectuation of insurance, inspection

56-602

UNAUTHORIZED INSURERS, ETC.

76

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.
(b) Represent any person in the procuring of insurance in such an unauthorized insurer upon or with relation to any subject of insurance.
(2) This section shall not apply to:
(a) Surplus line insurance which is authorized by this Chapter and transactions as to which a certificate of authority is not required of an insurer under section 56-302.
(b) Reinsurance as authorized by section 56-413.
(c) To the services of an adjuster with respect to claims under policies lawfully solicited, issued and delivered outside of Georgia.
(d) Acceptance of service by the Commissioner pursuant to the provisions of this Title.
(e) To the professional services of an attorney.
56-602. Validity of contracts illegally effectuated; advertising.-(1) A contract of insurance effectuated by an unauthorized insurer in violation of this Title shall be voidable except at the instance of the insurer unless during the life of such contract the insurer is authorized to transact the class or classes of insurance involved.
(2) No publication published in this State, or radio or television broadcaster, or any other agency or means for the dissemination of information operated or located in this State, shali publish, broadcast, or otherwise disseminate within this State advertising for or on behalf of any insurer not then authorized to transact insurance in this State: Provided, however, that this subsection shall not apply as to publications published in this State principally

77

UNAUTHORIZED INSU RERS, ETC.

56-605

for circulation in other states, wherein advertising by or in behalf of such unauthorized insurers is not expressly directed toward residents or subjects of insurance in this State.
56-603. Unauthorized Insurers Process Act; title; interpretation.-{1) Sections 56-603 through 56-611 constitute and may be cited as the Unauthorized Insurers Process Act.
(2) Such Act shall be so interpreted as to effectuate its general purpose to make uniform the law of those states which enact it.
56-604. Purpose of Act.-The purpose of this Act is to subject certain insurers to the jurisdiction of courts of this State in suits by or on behalf of insureds or beneficiaries under insurance contracts. The legislature declares that it is a subject of concern that many residents of this State hold policies of insurance issued or delivered in this State by insurers while not authorized to do business in this State, thus presenting to such residents the often insuperable obstacle of resorting to distant forums for the purpose of asserting legal rights under such policies. In furtherance of such State interest, the legislature herein provides a method of substituted service of process upon such insurers and declares that in so doing it exercises its power to protect its residents and to define, for the purpose of this statute, what constitutes doing business in this State, and also exercises power and privileges available to the State by virtue of Public Law 15, 79th Congress of the United States, Chapter 20, 1st Sess., S. 340, as amended, which declares that the business of insurance and every person engaged therein shall be subject to the laws of the several states.
56-605. Acts by insurer which constitute appointment of Commissioner as agent for service.-Any of the following acts in this State, effected by mail or otherwise, by an unauthorized foreign or alien insurer: (1) the issuance or delivery of contracts of insurance to residents of this

56-606

UNAUTHORIZED INS URERS, ETC.

78

State or to corporations authorized to do business herein; (2) the solicitation of applications for said contracts; (3) the collection of premiums, membership fees, asse~s ments or other considerations for such contracts; or (4) any other transaction of business is equivalent to and shall constitute an appointment by such insurer of the Commissioner and his successors in office as its attorney upon whom may be served all lawful process in any action, suit or proceeding instituted by or on behalf of an insured or beneficiary arising out of such contracts of insurance, and any such act shall be a signification of this agreement that such service of process is of the same legal force and validity as personal service of process in this State upon such insurer.
56-606. Service upon Commissioner; number of copies; duties of Commissioner; affidavit of compliance by plaintiff.-Service shall be made by delivery to and leaving with the Commissioner or some person in apparent charge of his office two copies of the suit and process.
At the time of such service, the plaintiff shall pay the Commissioner the sum of two ($2.00) dollars, which shall be taxable as cost. The Commissioner shall forthwith mail by registered mail one of the copies of such suit and process to the defendant at its last known principal place of business, and shall keep a record of all process so served upon him. Such service is sufficient, provided notice of such service and a copy of the suit and process are sent within fifteen (15) days thereafter by registered mail by plaintiff or 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 or 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

79

UNAU THORIZED INSURERS, ETC.

56-609

time as the court may allow.
56-607. Service upon solicitor, collector or other agent of insurer; procedure.-Service of process in any such action, suit or proceeding shall, in addition to the manner provided in section 56-606, be valid if served upon any person within this State who, in this State on behalf of such insurer, is
(1) Soliciting insurance, or
(2) Making, issuing or delivering any contract of insurance, or
(3} Collecting or receiving any premium, membership fee, assessment or other consideration for insurance; and a copy of such process is sent within ten (10) days thereafter by registered mail by the plaintiff or 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 or 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.
56-608. Default judgment; necessity for affidavit of compliance.-No plaintiff or complainant shall be entitled to a judgment by default, or a judgment with leave to prove damages under this section until the expiration of thirty (30) days from date of the filing of the affidavit of compliance.
56-609. Mode of service cumulative.-Nothing in this Act 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.

56-610

UNAU THORIZED I NSURERS, ETC.

80

56-610. Conditions precedent to filing of defenses.(1) Before any unauthorized insurer shall file or cause to be filed any pleading in any action, suit or proceeding instituted against it, such unauthorized insurer shall either:
(a) Deposit with the clerk of the court in which such action, suit or proceeding is pending, cash or securities or file with such 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 action: Provided, however, that the court may in its discretion make an order dispensing with such deposit or bond where the insurer makes a showing satisfactory to such 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 action, suit or proceeding; or
(b) Procure a certificate of authority to transact the business of insurance in this State.
(2) The court in any action, suit or proceeding in which service is made in the manner provided in sections 56-606 or 56-607, in its discretion, may order such postponement as may be necessary to afford the defendant reasonable opportunity to comply with the provisions of subsection (1) of this section and to defend such action.
(3) Nothing in subsection (1) of this section is to be construed to prevent an unauthorized insurer from filing a motion to quash a writ or to set aside service thereof made in the manner provided in sections 56-606 or 56-607 on one or more of the following grounds:
(a) That such unauthorized insurer has not done any of the acts enumerated in section 56-605, or
(b) That the person on whom service was made pursuant to section 56-607 hereof, was not doing any of the

81

UNAUTHORIZED INSURERS, ETC.

56-612

acts therein enumerated, or
(c) That it is otherwise not properly subject to the jurisdiction of the court pursuant to the provisions of this Chapter.
56-611. Recovery of attorney's fees by plaintiff; effect of failure to defend.-In any action against an unauthorized foreign or alien insurer upon a contract of insurance issued or delivered in this State or a resident thereof or to a corporation authorized to do business therein, if the insurer has failed for thirty (30) days after demand prior to the commencement of the action to make payment in accordance with the terms of the contract, and it appears that such refusal was vexatious and without reasonable cause, the said insurer shall be subject to a penalty of not more than twenty-five (25%) percent of the liability of the insurer for the loss and an allowance for reasonable attorney's fees. Such attorney's fees shall be determined by the trial court and shall be included in any judgment which is rendered in such action. Failure of an Insurer to defend any such action shall be deemed prima facie evidence that its failure to make payment was vexatious and without reasonable cause. The limitations contained in this section in reference to the amount of attorney's fees are not controlling as to the fees which may be agreed upon by the plaintiff and his attorney for the services of suc]:l attorney in the action against the unauthorized insurer.
56-612. Exemptions from service of process provisions. -The Unauthorized Insurers Process Act, contained in sections 56-603 through 56-611 shall not apply to any action, suit or proceeding against any unauthorized insurer arising out of any contract of:
(1) Reinsurance effectuated in accordance with the Laws of Georgia;
(2) Surplus line insurance authorized by the provisions of this Chapter;

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82

(3) Insurance on property or operations of carriers engaged in interstate commerce ;
(4) Insurance against legal liability arising out of the ownership, operation or maintenance of any property having a permanent situs outside of this State; or
(5) Insurance against loss of or damage to any property having a permanent situs outside of this State where such contract contains a provision designating the Commissioner or a bona fide resident of the State of Georgia to be its true and lawful attorney upon whom may be served all lawful process in any action, suit or proceeding instituted by or on behalf of an insured or beneficiary arising out of any such contract or where the insurer enters a general appearance in any such suit, action or proceeding.
56-613. Surplus Lines Insurance Law.-Sections 56613 through 56-628 shall constitute and may be referred to as "The Surplus Lines Insurance Law."
56-614. Surplus lines; broker.-If the full amount of insurance required to protect the interest of the insured cannot be obtained from insurers who are authorized to do business in this State, such surplus amount, hereinafter designated as "surplus line," may be procured from unauthorized insurers subject to the following conditions:
(1) The insurance must be procured through a licensed surplus line broker.
(2) The full amount or kind of insurance required to protect the insured is not procurable, after diligent effort has been made to do so, from among the insurers who are authorized to transact and are actually writing the particular kind and class of insurance in this State, and the amount of insurance placed in an unauthorized insurer is only the excess over the amount procurable from authorized insurers. Submission of the risk to not less than

83

UNAUTHORIZED INSURERS, ETC.

56-618

(1) Application to the Commissioner for the license diligent effort.
(3) The insurance must not be procured for the purpose of securing advantages either as to:
(a) A lower premium rate than would be accepted by an authorized insurer; or
(b) Terms of the insurance contract.
56-615. Broker's affidavit.-At the time of procuring any such insurance an affidavit setting forth the facts referred to in section 56-614, and such other information as the Commissioner may require, must be executed by the surplus line broker or by the originating agent or broker. Such affidavit shall be filed with the Commissioner within sixty (60) days after the insurance is procured and such affidavit shall be open to public inspection.
56-616. Endorsement of contract.-Every insurance contract procured and delivered as a surplus line coverage shall be initialed by or bear the name of the surplus line broker who procured it and shall have printed or stamped upon it the following: "This contract is registered and delivered as a surplus line coverage under the Surplus Line Insurance Law and this (these) insurer(s) is (are) not authorized to do business in Georgia."
56-617. Validity of surplus line insurance.-Insurance contracts procured as surplus line coverage from unauthorized insurers in accordance with this Chapter shall be fully valid and enforceable as to all parties, and shall be given recognition in all matters and respects to the same effect as like contracts issued by authorized insurers.
56-618. Surplus line brokers; licensing.-Any person, while licensed as a resident agent or broker as to property, casualty and surety insurances, and who is deemed by the Commissioner to be competent and trustworthy, may be licensed as a surplus line broker as follows:

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UNAUTHORIZED INSURERS, ETC.

84

(1) Application to the Commissioner for the license shall be on forms furnished by the Commissioner.
(2) The license fee shall be $300 for each license year during any part of which the license is in force.
(3) Each license shall be issued for a term expiring on March 1st next following the date of issuance and may be renewed annually by filing an application and paying the prescribed fee in accordance with this section.
(4) Prior to the issuance of the license or any renewal thereof, the applicant shall file with the Commissioner a bond, to be approved by the Commissioner and made payable to the Commissioner or his successor in office, executed by such applicant as principal and by a corporate surety authorized to do business in this State, in the penal sum of $20,000, conditioned that the broker will conduct the business in accordance with the provisions of this Title, that he will remit promptly the taxes provided for in section 56-623, and that he will account to any person requesting him to obtain insurance for moneys or premiums collected in connection therewith. No such bond shall be terminated unless prior to such termination 30 days' written notice is filed with the Commissioner.
56-619. Broker may accept business.-A licensed surplus line broker may accept and place surplus line business for any insurance agent or broker licensed in this State for the kind of insurance involved, and may compensate such agent or broker therefor.
56-620. Solvent insurers required.- ( 1) The broker shall ascertain the financial condition of the unauthorized insurer before placing insurance therewith and shall not knowingly place surplus line insurance with insurers who are unsound financially.
(2) The broker shall not so insure: (a) With a foreign insurer having capital and surplus amounting to less than one million ($1,000,000) dollars; provided, however, if the Commissioner finds that it is in the public interest, he may allow brokers to insure with foreign insurers having capital and surplus of less than one million ($1,000,000) dollars which were legally writ-

85

UNAUTHORIZED INSU RERS, ETC.

56-621

ing surplus line insurance in Georgia on January 1, 1969, but in no event shall a broker insure with a foreign insurer having capital and surplus amounting to less than three hundred fifty thousand ($350,000) dollars.
(b) With an alien insurer which has been established for less than ten (10) years and which has less than three million ($3,000,000) dollars in total assets.
(3) For any violation of this section, in addition to any other penalty provided by law, the brokers' license shall be revoked and the broker shall not again be so licensed within a period of two years thereafter.
56-621. Evidence of the insurance; changes; penalty. -(1) Upon placing a surplus line 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, if such policy is not then available, the surplus line broker's certificate. Such a certificate shall be executed by the broker and shall show the description and location of the subject of the insurance, coverage, conditions and term of the insurance, the premium and date charged and taxes collected from the insured, and the name and address of the insured and the insurer. If the direct risk is assumed by more than one insurer, the certificate or the policy, when delivered, shall state the name and address and proportion of the entire direct risk assumed by each such insurer.
(2) No broker shall issue any such certificate or any cover note, or purport to insure or represent that insurance will be or has been granted by any unauthorized insurer unless he has prior written authority from the insurer for the insurance, or received information from the insurer in the regular course of business that such insurance has been granted, or an insurance policy providing the insurance actually has been issued by the insurer and delivered to the insured.
(3) If after the issuance and delivery of any such certificate there is any change as to the identity of the insurers, or the proportion of the direct risk assumed by the

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UNAU THORIZED INS URERS, ETC.

86

insurer as stated in the broker's original certificate, or 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 or endorsement accurately showing the current status of the coverage and the insurers responsible thereunder.
(4) If a policy issued by the insurer is not available upon placement of the insurance and the broker has issued and delivered his certificate as hereinabove provided, upon request therefor by the insured, the broker shall as soon as reasonably possible procure from the insurer its policy evidencing the insurance and deliver the policy to the insured in replacement of the broker's certificate theretofore issued.
(5) Any surplus line broker who knowingly or negligently issues a false certificate of insurance, or who fails promptly to notify the insured of any material change with respect to such insurance by delivery to the insured of a substitute certificate or endorsement as provided in subsection (2) of this section shall, upon conviction, be subject to the penalties provided by section 56-624 or to any greater applicable penalty provided by law.
56-622. Record of surplus line brokers; quarterly report.-(1) Each licensed surplus line broker shall keep in his office a separate account of each policy written or renewed showing the exact amount of insurance placed, the name and post office address of the insured, the name and home address of the insurer, the location of the insured property, the gross premium charged therefor, the amount of premium tax paid thereon, the nature of the risk, the number, date and term of the policy and such other information as the Commissioner may require. Such record shall at all times be open to examination by the Commissioner.
(2) Each such broker shall file with the Commissioner, on a quarterly basis, the certificate or cover note number,

87

UNAUTHORIZED INSURERS, ETC.

56-625

name of insured, the amount of the premium and the tax paid thereon for all surplus lines transactions during the previous quarter.
56-623. Tax on surplus line brokers.-(1) On or before the 15th day of April, July, October and January the surplus line broker shall remit to the Commissioner, as a tax imposed for the privilege of doing business as a surplus line broker in this State, a tax of four (4 % ) percent on the direct premiums written, less return premiums and exclusive of sums collected to cover State or Federal taxes, on surplus line insurance subject to tax transacted by him during the preceding quarter as shown by his statement filed with the Commissioner.
(2) If a surplus line policy covers risks or exposures only partially in this State, the tax so payable shall be computed on the proportion of the premium which is properly allocable to the risks or exposures located in this State.
56-624. Penalty for failure to comply.-lf any surplus line broker fails to file his quarterly statement, or fails to remit the tax as provided by law within thirty (30) days after the tax is due, he shall be liable for a penalty of twenty-five ($25.00) dollars for each day of delinquency commencing after the expiration of the thirty ( 30') day period; except that for good cause shown, the Commissioner may grant a reasonable extension of time within which such statement may be filed and the tax may be paid. The tax may be recovered by distraint and the penalty and tax may be recovered by an action instituted by the Commissioner in any court of competent jurisdiction. The Commissioner shall pay to the State Treasurer any penalty so collected.
56-625. Revocation of broker's license. - (1) The Commissioner shall revoke any surplus line broker's license:
(a) If the broker fails to file his quarterly statement

56-626

UNAUTHORIZED INSURERS, ETC.

88

or to remit the tax as required by law; or
(b) If the broker fails to maintain an office in this State, or to keep records, or to allow the Commissioner to examine his records as required by law; or
(c) For any of the causes for which an agent's license may be revoked.
(2) The Commissioner may revoke or suspend any or all such licenses whenever he deems such suspension or revocation to be for the best interests of the people of this State.
(3) The procedures provided in Chapter 56-Sa or 56-Sb for the suspension or revocation of agent's licenses shall be applicable to suspension or revocation of a surplus line broker's license.
(4) No broker whose license has been so revoked shall again be so licensed within two years thereafter, nor until any penalties or delinquent taxes owing by him have been paid.
56-626. Service of process.-(1) An unauthorized insurer shall be sued, upon any cause of action arising in this State under any contract issued by it as a surplus line contract pursuant to this Chapter, in the superior court of the county in which the cause of action arose.
(2) Every unauthorized insurer issuing or delivering a surplus line policy through a surplus line broker in this State shall be deemed thereby to have appointed the Commissioner as its attorney for acceptance of service of all legal process issued in this State in any action or proceeding arising out of such policy, and service of such process upon the Commissioner shall be lawful personal service upon such insurer.
(3) Each surplus line policy shall contain a provision stating the substance of subsection (2) of this section, and

89

UNAUTHORIZED INSURERS, ETC.

56-628

designating the person to whom the Commissioner shall mail process as provided in subsection (4) of this section.
(4) Duplicate copies of legal process against such insurers shall be served upon the' Commissioner, and at time of service the plaintiff shall pay the Commissioner two ($2.00) dollars, taxable as costs in the action. The Commissioner shall forthwith mail one copy of the process so served to the person designated by the insurer in .the policy for the purpose, by registered mail with return receipt requested. The insurer shall have thirty (30) days after such date of mailing within which to plead, answer, or otherwise defend the action.
56-627. Exemptions from Surplus Line Law.-The provisions of this Surplus Line Insurance Law controlling the placing of insurance with unauthorized insurers shall not apply to reinsurance or to the following insurances when so placed by licensed agents or brokers of this State:
(1) Ocean marine and foreign trade insurances;
(2) Insurance on subjects located, resident, or to be performed wholly outside of this State, or on vehicles or aircraft owned and principally garaged outside this state;
(3) Insurances on property or operation of railroads engaged in interstate commerce ;
(4) Insurance of aircraft owned or operated by manufacturers of aircraft or operated in scheduled interstate flight, or cargo of such aircraft, or against liability, other than workmen's compensation and employer's liability, arising out of the ownership, maintenance or use of such aircraft.
56-628. Report of and tax on independently procured coverages.-(1) Every insurer who in this State procures or causes to be procured or continues or renews insurance in an unauthorized insurer upon a subject of insur-

56-628

UNAUTHORIZED INSURERS, ETC.

90

ance resident, located, or to be performed within this State, other than insurance procured through a surplus line broker pursuant to the Surplus Lines Insurance Law of this State or exempted from such law under section 56-627, shall within thirty (30) days after the date such insurance was so procured, continued, or renewed, file a report of the same with the Commissioner, in writing and upon forms designated by the Commissioner and furnished to such an insured upon request. Such report shall state the name and address of the insured or insureds, name and address of the insurer, the subject of the insurance, a general description of the coverage, the amount of premium currently paid thereon, and such additional information as reasonably requested by the Commissioner.
(2) For the general support of the Government of this State, there is levied and there shall be collected from every such insured in this State for the privilege of so insuring his property or interests, a tax at the rate of four (4 % ) percent of the gross premium paid for any such insurance, after deduction of return premiums, if any. Such tax shall be paid to the Commissioner, coincidentally with the filing of the report provided for in subsection (1) above.
(3) The tax imposed hereunder if delinquent shall bear interest at the rate of six (6%) percent per annum, compounded annually.
(4) Such tax shall be collectible by civil action brought by the Commissioner, or by distraint; and if with respect to insurance of real property, the tax shall constitute a lien upon such real property while owned by the insured, enforceable in the same manner and through the same procedures as govern the collection of other taxes upon such real property under the laws of this State.
(5) This section shall not apply as to life or accident and sickness insurances.

91

UNFAIR TRADE PRACTICES

56-702

CHAPTER 56-7
UNFAIR TRADE PRACTICES
56-701. Declaration of purpose of Chapter. 56-702. Definition of person. 56-703. Unfair methods of competition or unfair and de-
ceptive acts or practices prohibited. 56-704. Unfair methods of competition and unfair or de-
ceptive acts or practices defined. 56-705. Power of Commissioner. 56-706. Hearings, witnesses, appearances, production of
books and service of process. 56-707. Cease and desist orders and modifications there-
of. 56-708. Procedure as to unfair methods of competition
and unfair or deceptive acts or practices other than those defined in sections 56-704 and 56-713. 56-709. Judicial review of orders of the Commissioner. 56-710. Judicial review; appeal by intervenor. 56-711. Penalty for violation of cease and desist order. 56-712. Anticompact law. 56-713. Definitions of unfair methods and practices continued. 56-714. Provisions of Chapter additional to existing law.
56-701. Declaration of purpose of Chapter.-The purpose of this Chapter is to regulate trade practices in the business of insurance in accordance with the intent of Congress as expressed in the Act of Congress of March 9, 1945 (Public Law 15, 79th Congress), by defining, or providing for the determination of, all such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.
56-702. Definition of person.-When used in this Chapter, "person" shall mean an individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds insurer, fraternal benefit society, and any

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UNFAIR TRADE PRACTICES

92

other legal entity engaged in the business of insurance, including, but not limited to, agents, brokers, counselors and adjusters.
56-703. Unfair methods of competition or unfair and deceptive acts or practices prohibited.-No person shall be engaged in this State in any trade practice which is defined in this Chapter as, or determined pursuant to this Chapter to be, an unfair method or competition or an unfair or deceptive act or practice in the business of insurance.
56-704. Unfair methods of competition and unfair or deceptive acts or practices defined.-The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance:
{1) Misrepresentations and false advertising of policy contracts.-Making, issuing, circulating, or causing to be made, issued or circulated, any estimate, illustration, circular or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplus to be received thereon, or making any false or misleading statement as to the dividends or share of surplus previously paid on similar policies, or making any misleading representation or any misrepresentation as to the financial condition of any insurer, or as to the legal reserve system upon which any life insurer operates, or using any name or title of any policy or class of policies misrepresenting the true nature thereof, or making any misrepresentation to any policyholder insured in any company for the purpose of inducing or tending to induce such policyholder to lapse, forfeit, or surrender his insurance. A dividend estimate prepared on company forms clearly indicating in type equal in size to that used in figures showing amounts of estimated dividends that such dividends are based on estimates made by the company based upon past experience of such company shall not be considered misrepresentation and false advertising within the mean-

93

UNFAIR TRADE PRACTICES

56~704

ing of this subsection.

(2) False information and advertising generally.-

Making, publishing, disseminating, circulating, or placing

before the public, or causing, directly or indirectly, to be

made, published, disseminated, circulated, or placed be-

fore the public, in a newspaper, magazine, or other publi-

cation, or in the form of a notice, circular, pimphlet,

letter or poster, or over any radio station, or in any other

way, an advertisement, announcement or stat_ement con-

taining any assertion, representation or statement with

respect to the business of insurance or with respect to any

person in the conduct of his insurance business, which is

untrue, deceptive or misleading.

'

(3) Defamation.-Making, publishing, disseminating or circulating directly or indirectly, or aiding, abetting or encouraging the making, publishing, disseminating or circulating of any oral or written statement or any pamphlet, circular, article or literature which is false or .mali.ciously critical of or substantially misrepresents the financial condition of an insurer, and which is calculated to injure any person engaged in the businesso~ insurance.

( 4) Boycott, coercion and intimidation.-.Entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion or intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the business of insurance.

(5) False financial statements.-Filing with any supervisory or other public official, or making, publishing, disseminating, circulating or delivering to any person, or placing before the public, or causing directly or indirectly, to be m:;tde, published, disseminated, circulated, delivered to .any person, or placed before the public, any false statement of financial condition of an insurer with the intent to deceive.

Making any false entry in any book, report or statement of any insurer with intent to deceive any agent or

56-704

UNFAIR TRADE PRACTICES

94

examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to whom such insurer is required by law to report, or who has authority by law to examine into its condition or into any of its affairs, or with like intent, wilfully omitting to make a true entry of any material fact pertaining to the business of such insurer in any book, report or statement of such insurer.
(6) Stock operations and advisory board contracts.Issuing or delivering or permitting agents, officers, or employees to issue or deliver, agency or company stock or other capital stock, or benefit certificates or shares in any common-law corporation, or securities or any special or advisory board contracts of any kind promising returns and profits as an inducement to insurance.
(7) Unfair discrimination.-(a) Making or permitting any unfair discrimination between individuals of the same class, same policy amount, and equal expectation of life in the rates charged for any contract of life insurance or of life annuity or in the dividends or other benefits payable thereon, or in any other of the terms and conditions of such contract.
(b) Making or permitting any unfair discrimination between individuals of the same class and of essentially the same hazard in the amount of premium, policy fees, or rates charged for any policy or contract of accident or sickness insurance or in the benefits payable thereunder, or in any of the terms or conditions of such contract, or in any other manner whatever.
(8) Rebates.-(a) Except as otherwise expressly provided by law, knowingly permitting or offering to make or making any contract of insurance or agreement as to such contract other than as plainly expressed in the contract issued thereon; or paying or allowing, or giving or offering to pay, allow or give, directly or indirectly, as inducement to any contract of insurance, any rebate of premiums payable on the contract, or any special favor

95

UNFAIR TRADE PRACTICES

56-704

or advantage in the dividends or other benefits thereon, or
t any valuable consideration or inducement whatever not
specified in the contract; except in accordance with, an applicable rate filing, rating plan or rating system filed with and approved by the Commissioner; or giving or selling or purchasing or offering to give, sell, or purchase as inducement to such insurance, or in connection therewith, any stocks, bonds or other securities of any company, or any dividends or profits accrued thereon or anything of value whatsoever not specified in the contract or receiving or accepting as inducement to contracts of insurance, any rebate of premium payable on the contract, or any special favor or advantage in the dividends or other benefit to accrue thereon, or any valuable consideration or inducement not specified in the contract.
(b) Nothing .in subsection (7) or subpart (a) of this subsection shall be construed as including within the definition of discrimination or rebates any of the following practices:
(i) In the case of any contract of life insurance or life annuity, paying bonuses to policyholders or otherwise abating their premiums in whole or in part out of surplus accumulated from nonparticipating insurance; Provided, that any such bonuses or abatement of premiums shall be fair and equitable to policyholders and for the best interest of the company and its policyholders.
(ii) In the case of life or accident and sickness insurance policies issued on the industrial debit or weekly premium plan, making allowance to policyholders who have continuously for a specified period made premium payments directly to an office of the insurer in an amount which fairly represents the saving in collection expense.
(iii) Making a readjustment of the rate of premium for a policy based on the loss or expense experience thereunder, at the end of the first or any subsequent policy year of insurance thereunder, which may be made retroactive only for such policy year.

56-704

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96

(iv) Issuing life or accident and sickness insurance policies covering bona fide employees of the insurer at a rate less than the rate charged other persons in the same class.
(v) Issuing life or accident and sickness policies on a salary saving, payroll deduction, pre-authorized, postdated, automatic check or draft plans at a reduced rate commensurate with the savings made by the use of such plan.
(vi) Paying commiSSIOners or other compensation to duly licensed agents or brokers, or allowing or returning to participating policyholders, members or subscribers, dividends, savings or unabsorbed premium deposits.
(vii) Paying by an insurance agent of part or all of commissioners on public insurance to a nonprofit association of insurance agents which is affiliated with a recognized state or national insurance agents' association to be used in whole or in part for one or more civic enterprises.
(viii) As used in this section, the word "policy" includes any insuring bond issued by an insurer.
(9) Agent's misrepresentation or concealment.-(a) Failing to properly instruct and require that agents shall in the solicitation of insurance and the filling out of applications of insurance on behalf of policyholders, incorporate therein all material facts relevant to the risk being written known to the agent, or which could have been known by proper diligence.
(b) Encouraging agents to accept applications which contain material misrepresentations or conceal material information, which, if stated in the application, would prevent issuance of the policy, or which would void a policy from its inception according to its terms even though premiums nad been paid thereon.

97

UNFAIR TRADE PRJ\OTICE S

56-706

(10) Requiring coverage through a certain <:ompany or a particular agent..--Any insurer or agent of ~arne becoming a party to requiring or imposing a~ a condition to the sale of real or personal property or to the financing of the same, or as a condition to the granting
of or an extension of a loan which is to be secured,by the
title to or a lien of any kind on real or personal property, or to the performance of any other act in ~o:p:p.ection with such sale, financing, or lending whether S1JCh person thus acts for himself or for any one else, whatever, that the insurance or any renewal thereof tg b~ i~sued on said property as collateral to said sale or loan, shall be written through any particular insurance compa:p.y or agent: Provided, that this section shall not ~;pply to a policy purchased by the seller, financier, or lender from his or its own funds and not charged to the pqrchaser or borrower in the sale price of the property o:r the amount of the loan or :required to be paid for out of his personal funds: Provided, further, that such seller, financier, or lender may disapprove for reason!:~ affecting solvency or other sensible and sufficient reasons, the insurance company selected by the buyer or borrower. This subsection shall not apply to title insurance.
56-705. Power of Commissioner..--The Commissioner shall have power to examine and investigate into the affairs of every perso:p. engaged in the business of insurance in this State in order to determine whether such person has been or is engaged in any unfair method of competition or in any unfair or deceptive act or practice prohibited by this Chapter. -
56.706. Heal'ings, witnesses, ~pp~arances, prqduction of books and service of process.- (1) Whenever the Commissioner shall have reason to believe that any such person has been engaged or is engaging in this State in any unfair method of competition, or any u:p.fair or deceptive act or practice defined in sections 56-'704 and 56,713, and that a proceeding by him in respect thereto
would be to the interest of the public, he shall issue

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and serve upon such person a statement of the charges in that respect and a notice of a hearing thereon to be held at a time and place fixed in the notice, which shall not be less than fifteen (15) days after the date of the service thereof.
(2) At the time and place fixed for such hearing, such person shall have an opportunity to be heard and to show cause why an order should not be made by the Commissioner requiring such person to cease and desist from the acts, methods or practices so complained of. Upon good cause shown, the Commissioner shall permit any person to intervene, appear and be heard at such hearing by counsel or in person.
(3) Nothing contained in this Chapter shall require the observance at any such hearing of formal rules of pleading or evidence.
(4) The Commissioner, upon such hearing, may ad- minister oaths, examine and cross-examine witnesses, receive oral and documentary evidence, and shall have the power to subpoena witnesses, compel their attendance, and require the production of books, papers, records, correspondence, or other documents which he deems relevant to the inquiry. The Commissioner, upon such hearing, may, and upon the request of any party shall, cause to be made a record of all the evidence and all the proceedings had at such hearing. In case of a refusal of any person to comply with any subpoena issued hereunder or to testify with respect to any matter concerning which he may be lawfully interrogated, the Superior Court of Fulton County, or the county where such party resides, on application of the Commissioner, may issue an order requiring such person to comply with such subpoena and to testify; and any failure to obey any such order of the court may be punished by the court as a contempt thereof.
(5) Statements of charges, notices, orders, and other

99

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processes of the Commissioner under this Chapter may be served by anyone duly authorized by the Commissioner, either in the manner provided by law for service of process in civil actions, or by registering and mailing a copy thereof to the person affected by such statement, notice, order, or other process at his or its residence or principal office or place of business. The verified return by the person so serving such statement, notice, order, or other process, setting forth the manner of such service, shall be proof of the same, and the return postcard receipt for such statement, notice, order, or other process, registered and mailed as aforesaid, shall be proof of the service of the same.
56-707. Cease and desist orders and modifications thereof.-(1) If after such hearing, the Commissioner shall determine that the method of competition or the act or practice in question as defined in sections 56-704 and 56-713, and that the person complained of has engaged in such meth~d of competition, act or practice in violation of this Chapter, he shall reduce his findings to writing and shall issue and cause to be served upon the person charged with the violation, an order requiring such person to cease and desist from. engaging in such method of competition, act or practice.
(2) The Commissioner may at any time before the serving of notice of appeal upon him (as hereinafter provided for), or after the expiration of the time allowed by law for the serving of such notice, if no such notice has been thus served, amend or set aside in whole or in part any order issued by him under 'this section, whenever in his opinion the facts and circumstances surrounding the case have so changed as to require such action, or if the public interest shall so require. No change of an order in a manner unfavorable to the person charged, or to the parties at interest, shall be made except after notice and opportunity for hearing. The date of the Commissioner's last order shall be the point of time from which it may be reviewed by appeal.

56-70S

UNFAIR TRADE PRActicEs

100 '

56708. Procedure as to unfair methods of competition and UH.Eair or deceptive acts or practices other than those defined in sections 56-704 and 56-713.-(1) Whenever thE! Commissioner shall have reason to believe that any petsoh ehgaged in the business of insurance is engaging ih this State in any method of competition or in any act or practice in the conduct of such business which is ndt defined in sections 56-704 or 56-713, that such method bf competition is unfair or that such act or practice is Uhfai'r or deceptive and that a proceeding by him in respect thereto would be to the interest of the public, he may issue and serve upon such person a statement of the charges in that respect and a notice of a hearing thereon to be held at a time and place fixed in the notice, which shall not be less than fifteen (15) days after the date of the service thereof. Each such hearing shall be conducted in the same manner as the hearings provided for in section 56-706. The Commissioner shall, after such hearing, make a report in writing in which he shall state his findings as to the facts, and he shall serve a copy thereof upon such person.
{2) If such report charges a violation of this Chapter and if such method of competition, act or practice has not been discontinued, the Commissioner may, through the Attorney General of this State, at any time after fifteen (15) days after the service of such report, cause a petition to be filed in the superior court of this State within the county wherein the person resides, or has his principal place of business, to enjoin and restrain such person from engaging in such method, act or practice. The court shall have jurisdiction of the proceedings and shall have power to make and enter appropriate orders in connection therewith and to issue such writs as are ancillary to its jurisdiction or are necessary in its judgment to prevent injury to the public pendente lite.
_(3) A transcript of the proceedings before the Commissioner and of his findings shall be filed with such petition. The court may, in its discretion, order additional evidence to be taken before the Commissioner, and to be adduced upon the hearing, in such manner and

101

UNFAIR TRADE PRACTICES

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upon such terms and conditions as to the court may seem proper. The Commissioner may modify his findings of fact or make new findings by reason of the additional evidence so taken, and he shall file such modified or new findings with the return of such additional evidence.
(4) If the court finds that the method of competition complained of is unfair or that the act or practice complained of is unfair or deceptive, it shall so rule. Having so found, if it further finds that the findings of the Commissioner are supported by evidence it shall issue its order enjoining and restraining the continuance of such method of competition, act, or practice.
56-709. Judicial review of orders of the Commissioner.-(!) Any order, decision, or the imposition of any penalty by the Commissioner shall be subject to review by petition for review as provided in Chapter 56-2. The Commissioner's finding upon questions of fact shall be final if sustained by substantial evidence.
(2) To the extent that the order of the Commissioner is affirmed, the court shall thereupon issue its own order commanding obedience to the terms of such order of the Commissioner.
(3) Cease and desist ' orders issued by the Commissioner under section 56-708 shall become final; (a) upon the expiration of the time allowed by law for the filing of a petition for review, if no such petition has been filed within such time, except that the Commissioner may thereafter modify or set aside his order to the extent provided in section 56-707 (2); or (b) upon the final decision of the court, if the court directs that the order of the Commissioner be affirmed or the appeal dismissed.
56-710. Judicial review; appeal by intervenor.-If the report of the Commissioner does not charge a violation of this Chapter, then any intervenor in the proceedings may cause a review of such decision .by appeal to the Superior Court of Fulton County as hereinbefore provided. Upon such a review, the court shall have

56-711

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authority to issue appropriate orders and decrees in connection therewith, including, if the court finds that it is to the interest of the public, orders enjoining and restraining the continuance of any method of competition, act or practice which it finds, notwithstanding such report of the Commissioner, constitutes a violation of this Chapter.
56-711. Penalty for violation of cease and desist order.-Any person who violates a cease and desist order of the Commissioner under section 56-707, after it has become final and while such order is in effect, shall, upon proof thereof to the satisfaction of the court, forfeit and pay to the State of Georgia a sum of not less than fifty ($50.00) dollars and not exceeding one thousand ($1,000) dollars, which may be recovered in a civil action.
56-712. Anticompact law.-(1) No person shall either within or outside of this State enter into any contract, understanding or combination with any other person to do jointly or severally any act or engage in any practice for the purpose of, or that has a tendency to or the effect of:
(a) Controlling the rates to be charged for insuring any risk or any class of risks in this State; or
(b) Unfairly discriminating against any person in this State by reason of his plan or method of transacting insurance, or by reason of his affiliation or non affiliation with any insurance organization; or
(c) Establishing or perpetuating any condition in this State detrimental to free competition in the business of insurance or injurious to the insuring public.
(2) This section shall not apply relfi.tive to ocean marine and foreign trade insurance.
(3) This section shall not be deemed to prohibit the doings of things permitted to be done in accordance with the provisions of Chapters 56-5a and 56-5b.

\

103

UNFAIR TRADE PRAcTICEs

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(4) Whenever the Commissioner has knowledge of any violation of this section he shall forthwith order the offending person to discontinue such practice immediately or show cause to the satisfaction of the Commissioner why such order should not be complied with. If the offender is an insurer or a licensee under , _this Title and fails to comply with such order within thirty (30) days after receipt thereof, the Commissioner may forthwith revoke the offender's certificate of authority or licenses.
56-713. Definitions of unfair methods and practices continued.-In addition to section 56-704, violations of the following provisions also are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance :
(1) No insurance company shall issue, or cause to be issued, any policy of insurance of any type or description upon life, or property, real or personal, whenever such policy of insurance is to be furnished or de~ivered to the purchaser or bailee of any property, real or personal, as an inductment to purchase or bail said property, real or personal, and no other person shall advertise, offer or give free insurance, insurance without cost or for less than the approved or customary rate, in connection with the sale or bailment of real or personal property, except as provided in Chapter 56-27.
(2) No person that is not an insurer shall assume or use any name which deceptively infers or suggests that it is an insurer.
(3) Where the premium or charge for insurance of or involving real or personal property or mechandise is included in the over-all purchase price or financing of the purchase of merchandise or property, the vendor or lender shall separately state and identify the amount charged and to be paid for the insurance, and the classifications, if any, upon which based; and the inclusion or exclusion of the cost of insurance in such purchase price or financing shall not increase, reduce, or other-

/

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wise affect any other factor involved in the cost of the merchandise or property or financing as to the purchaser or borrower. A vendor or lender shall not be prohibited from charging the purchaser or borrower a finance charge otherwise permitted by law on any premium or charge for insurance included in the cost of the merchandise or property or financing. This subsection does not apply to credit like or credit accident and sickness insurance which is in compliance with section 56-3306.
(4) Fictitious groups.-(a) No insurer shall make, offer to make, or permit any preference or distinction in property, marine, casualty or surety insurance as to form of policy, certificate, premium, rate, or conditions of insurance, based upon membership, nonmembership, or employment of any person or persons by or in any particular group, association, corporation or organization, and shall not make the foregoing preference or distinction available in any event based upon any fictitious grouping of persons as defined in this Title, such fictitious grouping being hereby defined and declared to be any grouping by way of membership, nonmembership, license, franchise, employment contract, agreement or any other method or means resulting in unfair discrimination.
(b) The restrictions and limitations of this subsection shall not extend to life, accident and sickness insurance, nor shall they apply to any bona fide association group composed of members engaged in a common trade, business or profession, and which has had group insurance of the same type continuously in existence for at least five years immediately preceding the effective date of this Act.
(5) Illegal dealing in premiums; excess or reduced charges for insurance.-(a) No person shall knowingly collect any sum as premium or charge for insurance, which insurance is not then provided or not in due course to be provided (subject to acceptance of the risk by the insurer) by an insurance policy issued by an insurer as permitted by this Title.

105

UNFAIR TRADE PRACTICES

56-713

(b) No insurer or agent thereof shall hypothecate, sell, or dispose of a promissory note received in payment of any part of a premium on a policy of insurance applied for prior to acceptance of the risk by the insurer.
(c) No person shall knowingly collect as premium or charge for insurance any sum in excess of or less than the premium or charge applicable to such insurance, and as specified in the policy, in accordance with the appli'cable classifications and rates as filed with and approved by the Commissioner; or, in cases where classi-
I fications, premiums, or rates are not required by this
Title to be so filed and approved, such premiums and charges shall not be in excess of or less than those specified in the policy and as fixed by the insurer. This \ provision shall not be deemed to prohibit the charging and collecting, by surplus line brokers licensed under Chapter 56-6, of the amount of applicable state and federal taxes in addition to the premium required by the insurer. Nor shall it be deemed to prohibit the charging and collecting, by a life or accident and sickness insurer,, of amounts actually to be expended for medical examination of an applicant for life, accident and sickness insurance or for reinstatement of a life, accident and sickness insurance policy.
(6) Interlocking ownership; management.-(a) Any insurer may retain, invest in or acquire the whole or any part of the capital stock of any other insurer or insurers, or have a common management with any other insurer or insurers, unless such retention, investment, acquisition or common management is inconsistent with any other provision of this Title, or unless by reason thereof the business of such insurers with the public is conducted in a manner which substantially lessens competition generally in the insurance business or tends to create a monopoly therein.

(b) Any person otherwise qualified may be a director of two or more insurers which are competitors, unless the effect thereof is to lessen substantially competition

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106

between insurers generally or tends materially to create a monopoly.

56-71.4. Provisions of Chapter additional to existing law.-The powers vested in the Commissioner by this Chapter, shall be additional to any other powers to enforce any penalties, fines or forfeitures authorized by law with respect to the methods, acts and practices hereby declared to be unfair or deceptive.

Nothing contained in this Chapter shall be construed as repealing or amending the power of the Commissioner to revoke the license of any insurer or agent thereof, when he is commanded or authorized to do so by existing laws, or on account of a violation of this Chapter.

CHAPTER 56-SA.
AGENTS AND COUNSELORS LIFE, ACCIDENT AND SICKNESS
56-801a. Definitions. 56-802a. Representing unauthorized insurers prohibit-
ed ; personal liability of agent. 56-803a. Necessity for license ; doing business with un-
licensed agent prohibited. 56-804a. Application for license ; certificate of insurer;
examination fee. 56-805a. Examination of applicants. 56-806a. Rules and regulations of Commissioner as to
classification of applicants; type and conduct of examinations. 56-807a. Notice as to results of examination; issuance of license ; type of licenses. 56-808a. Licenses to nonresidents; reciprocal agreements; requirements. 56-809a. Additional licenses; placement of excess or rejected risks. 56-810a. Expiration and renewal of licenses; requests for renewal. 56-811a. Temporary licenses.

107

AGENTS AN D CouN SELORS, ETC.

56-SOla

56-812a. License revoked upon termination of appointment of agent; relative information as privileged communication.
56-813a. Refusal, suspension or revocation of license; notice; hearing; revocation as bar to issuance of new license; appeal.
56-814a. Notice of change of address by licensee. 56-815a. Rules and regulations established by Commis-
sioner. 56-816a. Inquisitorial powers in conduct of hearings;
evidence adduced as privileged. 56-817a. License without examination of persons pres-
ently acting as agents.
56-SOla. Definitions.-Whenever used in this Chapter certain terms shall be defined as follows:

(1) The term "agent" shall mean any authorized or acknowledged agent of an insurer and any subagent of such agent who acts as such in the solicitation of, negotiation for, or procurement or making of a contract of life, accident and sickness insurance, or making of an annuity contract; except that the term "agent" shall not include any regular salaried officer or employee of a licensed insurer or of a licensed insurance agent who does not solicit or accept from the public applications for any such contract. The term "agent" shall not include any representative of a hospital service nonprofit corporation or of a nonprofit medical service corporation as defined and regulated in Chapters 56-17 and 56-18, or the representative of any fraternal benefit society as defined and regulated in Chapter 56-19. A regular salaried officer or employee of an insurer authorized to do business in this State shall not be deemed to be an "agent" by reason of rendering assistance to or on behalf of a licensed insurance agent, provided that such salaried officer or employee devotes substantially all of his time to activities other than the solicitation of applications for life, acci-. dent and sickness insurance or annuity contracts, and receives no commission or other compensation directly dependent upon the amount of business obtained:

I

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AGENTS AND CouNSELORs, ETC.

108

Provided, however, that under franchise insurance plans a person who makes the salary deductions of premiums for the employees, or under a group insurance plan, a person who serves the master policyholder of group insurance in administering the details of such insurance for the employees or debtors of such person, or of a firm or corporation by which he is employed, and who does not receive insurance commissions for such service, shall not be deemed to be an agent: Provided, further, that an administration fee not exceeding five (5 % ) percent of the premiums collected, paid by the insurer to the administration office, shall not be construed to be insurance commissions.
(2) The term "subagent" shall mean any person (except as provided in subsection (1) of this section) who acts for or on behalf of a licensed agent in the solicitation of, negotiations for, or procurement or making of a life, accident and sickness insurance contract or annuity contract, whether or not he be designated by such agent as subagent or a solicitor or by any other title including the members of a partnership and the officers, directors, stockholders or employees of a corporation. Each subagent shall be deemed to be an agent as defined in subsection (1) of this section and wl;lerever in succeeding sections of this Chapter the term "agent" is used, it shall include subagents whether or not they are specifically mentioned. Each such person shall individually file an application for license and submit to a written examination as hereafter provided for applicants for an agent's license.
(3) The term "counselor" shall mean any person who engages, advertises, or holds himself out as engaging in the business of counseling, advising or rendering opinions as to the benefits promised under any contract of insurance issued or offered by any insurer, or as to the terms, value, effect, advantages or disadvantages thereof, in exchange for a e _commission or other compensation other nan (a) as a consulting actuary advising insurers; or (b) as to- the counseling and advising of labor unions, associations, trustees, employers or other busi-

109

AGENTs AND CouNsELORs, ETC.

56-801a

ness entities, the subsidiaries and affiliates of each relative to their interests and those of their members or employees under insurance benefit plans.
(4) The term "insurance contract" for the purposes of this Chapter shall mean any contract or policy effecting life insurance, or accident and sickness insurance or any annuity contract .on behalf of any company or insurer engaged in the business of writing life, accid.ent and sickness insurance or annuity contracts.
(5) The term "excess risk" shall mean all or any portion of a life, accident and sickness insurance risk or contract of annuity for which application is made to an agent, and which exceeds the amount of insurance or annuity which shall be provided by the insurer for which such agent is licensed.
(6) The term "rejected risk" shall mean a life, accident and sickness insurance risk or annuity contract for which application has been made to an agent and which insurance or annuity contract is declined by the insurer for which such agent is licensed.
(7) The term "agency" shall mean any person, partnership or corporation engaged in business as an agent as defined in subsection (1) of this section: Provided, that if the agency shall be a partnership or corporation, all partners, officers, directors, stockholders and employees who shall act as agents shall be licensed in lieu of the partnership or corporation, and no license shall be issued to or in the name of the partnership or corporation.
(8) The term "Commissioner" shall mean the Insurance Commissioner of the State of Georgia.
(9) The terms "company" and "insurer" shall mean a corporation, association, order, or society, subject to the insurance laws of this State, writing life, accident and sickness insurance, or annuity contracts, but shall not include fraternal benefit societies as defined and

56-802a

AGENTS AND .COUNSELORS, ETC.

. 110

regulated by Chapter 56-19, or hospital service nonprofit corporations and nonprofit medical service corporations as defined and regulated by Chapters 56-17 and 56-18.
56-802a. Representing unauthorized insurers prohibited; personal liability of agent.-No person shall, within this State, solicit, procure, receive or forward applications for life, accident and sickness insurance or annuities or issue or deliver policies for or in any manner secure, help or aid in the placing of any contract of life, accident and sickness insurance or annuity for any person other than himself, directly or indirectly, with an insurer not authorized to do business in this State. Such person, partnership or corporation shall be liable for the full amount of any loss sustained on any contract of life, accident and sickness insurance or annuity made by or through him or it, directly or indirectly, with any insurer not authorized to do business in this State, and, in addition for any premium taxes which may become due under any law of this State by reason of such contract.

56-803a. Necessity for license; doing business with unlicensed agent prohibited.-(!) No person shall act as an agent or as a counselor within this State until he shall have first procured a license from the Commissioner.
(2) No insurer shall issue, make, write, place or cause to be made, written, placed or issued any contract of life, or accident and sickness insurance in this State except through an agent who is licensed, pursuant to the provisions of this Chapter, at the time when the application for the contract of insurance is written.
(3) (a) No insurer or agent doing business in this State shall pay, directly or indirectly, any commission or any other valuable consideration to any person for services as an agent within this State, unless such person shall hold a currently valid license to act as an agent as required by the laws of this State; except that an insurer may pay such commission or other valuable consideration to, and a licensed insurance agent may share any commission or other valuable consideration with, an incorporated insurance agency in which all employees, stockholders,

111

AGENTS AND CouNsELORs, ETC.

56-804a

directors or officers who solicit, negotiate or effectuate insurance contracts are qualified insurance agents holding a currently valid license as required by the laws of this State.
(b) No person, partnership or corporation, other than a duly licensed agent or any agency as herein defined, shall accept any such commission or other valuable consideration, except as provided in subsection (a).
(c) Provided, however, that the provisions of this section shall not prevent the payment or receipt of renewal or other deferred commissions to or by any person solely because such person has ceased to hold a license to act as an agent and shall not prevent the payment of renewal or other deferred commissions to any incorporated insuranceagency solely because any of its stockholders has ceased to hold a license to act as an insurance agent.
(d) Provided, further, that the provisions of this section shall not prevent the payment or receipt of any commission or any other valuable consideration to or by a person who has applied for a temporary license pursuant to section 56-Slla, subsection (3), pending issuance of such temporary license.
56-804a. Application for license; certificate of insurer; examination fee.-(1) Each applicant for a license to act as an agent or counselor within this State shall file with the Commissioner his written application on forms furnished by the Commissioner. The application shall be signed and verified by oath of the applicant. The prescribed form shall require the applicant to state his full name, residence, age, occupation and place of business for five years preceding date of the application; whether applicant has ever held a license to solicit or to counsel as to insurance contracts in any state, and if so, what state, whether he has been refused or has had suspended or revoked, a license to solicit or to counsel as to insurance contracts in any state; what insurance experience, if any, he has had; what instruction in insurance and in the insurance laws of this State he has had or expects to have ; whether any insurer or general agent claims that the applicant is indebted under an agency

56-805a

AGENTS AND CouNsELORs, ETC.

112

contract or otherwise, and if so, the name of the claimant, the nature of the claim, and the applicant's defense thereto; whether applicant has had an agency contract cancelled, if so, when, by what company or general agent and the reason therefor; whether applicant will devote all or part of his efforts to acting as an insurance agent or counselor, and if part only, how much time he expects to devote to such work and in what other business or businesses he is engaged or employed; whether, if applicant is a married person, the husband or wife has ever applied for or held a license to solicit life or any other insurance in any state, and whether such license has been refused, suspended, or revoked ; and such other information as the Commissioner in his discretion may require.
(2) The application for an agent's license shall be accompanied by a certificate on forms furnished by the Commissioner and signed by an officer or properly authorized representative of an insurer stating that the insurer has investigated the character and background of the applicant and is satisfied that he is trustworthy and qualified to act as its agent and to hold himself out in good faith to the general public as an agent and that the insurer desires that the applicant be licensed as an agent to represent it in this State.
(3) If an applicant shall be required to take an examination, as hereinafter prescribed, his application,shall be accompanied by an examination fee as provided in Chapter 56-13, which shall not be refunded. This fee shall be charged for the privilege of taking only the first examination, or combination thereof, as set forth in section 56-806a, and the fee for the privilege of taking any subsequent examination, or combination thereof, shall be as provided in Chapter 56-13.
56-805a. Examination of applicants.--(1) Each applicant for a license to act as an agent within this State shall submit to a personal written examination to det ermine his competence to act as an agent and his familiarity

113

AGENTS AND CouNsELORs, ETC.

56-805a

with the pertinent provisions of the insurance laws of this State, and shall pass the same to the satisfaction of the commissioner; except that no such written examination shall be required:
(a) Of an applicant for a renewal license, unless the commissioner determines that such an examination is necessary to establish the competency of the applicant; or unless a license had not been effective as to such applicant within two years preceding the date of filing the application;
(b) Of an applicant who is a ticket-selling agent of a railroad or steamship company, carrier by air or public bus carrier who shall act as agent or solicitor in the sale of accident insurance polices to individuals;
(c) In the discretion of the commissioner, of an applicant who shall be licensed to act only as an agent with respect to life, accident and sickness insurance on borrowers or debtors commonly known as credit life, accident and sickness insurance;
(d) In the discretion of the commissioner, of an applicant whose license to do business or act as an agent in this State was suspended less than one year prior to the date of application;
(e) When the applicant shall furnish to the satisfaction of the commissioner proof that he has successfully completed all of the examinations prescribed by the Society of Chartered Life Underwriters of the American College of Life Underwriters leading to the degree of a chartered life underwriter;
(2) Each applicant for a license to act as a counselor within this State shall submit to a personal written examination to determine his competence to act as a counselor and his familiarity with the pertinent provisions of the insurance laws of this State, and shall pass the same to the satisfaction of the commissioner except for an applicant for a renewal license, unless the commissioner determines that such examination is necessary to establish the competency of the applicant; or unless a license had not been effective as to such applicant within two years preceding the date of filing the application: Provided, however, that an applicant for a license to act

56-806a

AGENTS AND CouNSELORs, ETC.

114

as a counselor who shall furnish to the satisfaction of the commissioner proof that he has successfully completed all of the examinations prescribed by the Society of Chartered Life Underwriters of the American College of Life Underwriters leading to the degree of a chartered life underwriter shall not be required to take the written examination provided for in this subsection prior to the issuance of such a license.
(3) Any applicant for a license to act as an agent who held a valid license to act as such which expired while such applicant was a member of any branch of the Armed Forces of the United States may be issued a renewal license without the necessity of taking an examination if he shall apply for a renewal thereof within a period of five (5) years from the date of the expiration of his old license and furnish proof satisfactory to the Commissioner that:
(i) he was a member of the Armed Forces of the United States at the time his old license expired, and
(ii) his service in the Armed Forces of the United States was not terminated more than one (1) year prior to the date upon which he applies for a renewal license.
56-806a. Rules and regulations of Commissioner as to classification of applicants; type and conduct of examination.-(1) The Commissioner may establish rules and regulations with respect to:
(a) The classification of applicants according to the type of insurance contracts to be effected by them if licensed as agents;
(b) The scope, type and conduct of written examinations to be given pursuant to this section and the time and places within this State for the holding of such examinations; Provided, however, that examinations shall be held at least semimonthly at the principal office of the Commissioner; and Provided further, that an examination shall be held at least as often as once in each two months, in each Congressional District.

115

AGENTs AND CouNSELoRs, ETC.

56-806a

(2) Such rules and regulations, when established, shall classify applicants for purposes of this section as follows:
(a) Those desiring to write life insurance;
(b) Those desiring to write accident and sickness insurance other than weekly premium accident and sickness insurance ;
(c) Those desiring to write weekly premium accident and sickness insurance ;
(d) Those desiring to write any combination of two or more of the above classifications; and
(e) Such other classifications as, in the opinion of the Commissioner, are necessary or appropriate.
(3) Examinations shall be prepared and given in those subjects only which pertain to the classification or classifications which the applicant desires to write, a,nd no applicant shall be required to take an examination on a subject or subjects pertaining to any other .classification.
(4) The rules and regulations of the Commissioner, when established, shall designate textbooks, manuals and other materials to be studied by the applicants in preparation for examinations in each classification designated by the Commissioner pursuant to this section. Such textbooks, manuals or other materials may consist of subject matter available to applicants by purchase from the publisher or may consist of subject matter prepared at the direction of the Commissioner and distributed to applicants upon request therefor, and payment of reasonable costs thereof. When textbooks, manuals or other materials shall have been designated or prepared by the Commissioner pursuant to this section, all examination questions shall be prepared from the contents of such textbooks, manuals or other materials.

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(5) No person who shall have taken and failed to pass two examinations given pursuant to this section with respect to a particular class or classes of insurance shall be entitled to take any further examination with respect to such class or classes until after the expiration of six months from the date of the last examination in which he failed. If such person shall thereafter fail to pass two more such examinations, he shall not be eligible to take any further examinations until after the expiration of one year from the date of his last unsuccessful examination. An examination fee shall be paid for each and every examination: Provided, however, that an applicant shall be permitted to take a single examination covering all classes of insurance contracts as defined in subsection (2) above.
56-807a. Notice as to results of examination; issu-
ance of license; types of licenses.-(1) If the Commissioner is satisfied that the applicant is trustworthy and competent and the applicant, if required, has passed a written examination and has met the requirements of Chapter 56-13, the Commissioner shall forthwith issue a license limited to the insurer and class or classes of insurance for which the agent is to be appointed. If the applicant has not passed his written examination or for any of the reasons set forth in section 56-813a, the Commissioner shall notify the applicant and the insurer, in writing, that a license will not be issued to him.
(2) In any case where a license is applied for to represent an insurer authorized in this State to transact an accident and sickness, as well as a life insurance, business, the Commissioner may, on request of the applicant, issue a single license authorizing the applicant to represent the insurer with respect to both types of business ; Provided, that the applicant, in addition to qualifying under this Chapter, has satisfied the Commissioner as required by the laws of this State and the regulations of the Commissioner, if any, that he is competent to represent such insurer with respect to life insurance and the types of accident and sickness insurance issued by it.

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(3) If, as to counselors, the Commissioner is satisfied that the applicant is trustworthy and competent and the applicant, if required, has passed a written examination, and has met the requirements of Chapter 56-13, the Commissioner shall forthwith issue a license.
56-808a. Licenses to nonresidents; reciprocal agreements; requirements.-(1) A person not resident in this State may be licensed as an agent upon compliance with the provisions of this Chapter: Provided, that the jurisdiction in which such person resides accords the same privileges to a citizen of this State.
(2) The Commissioner is further authorized to enter into reciprocal agreement with the appropriate official of any other jurisdiction waiving the written examination of any applicant resident in such other jurisdiction; provided:
(a) That a written examination is required of applicants for an agent's license in such other jurisdiction;
(b) That the appropriate official of such other jurisdiction certifies that the applicant holds a currently valid license as an agent in such other jurisdiction and either passed such written examination or was the holder of an agent's license prior to the time such written examination was required;
(c) That the applicant has no place of business within this State nor is an officer, director, stockholder, or partner in any coroporation or partnership doing business in this jurisdiction as an insurance agency; and
(d) That in such other jurisdiction, a resident of this State is privileged to procure an agent's license upon the foregoing conditions and without discrimination as to fees or otherwise in favor of the residents of such other jurisdiction.
56-809a. Additional licenses; placement of excess or rejected risks.- ( 1) Additional licenses shall be issued to any agent when requested by an official or duly authorized representative of an insurer: Provided, such additional license shall be limited to the class or classes for which the agent holds a license.

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(2) Any agent licensed in this State may place excess or rejected risks with any insurer lawfully doing business in this State, other than an insurer that such agent is licensed to represent, and an agent so placing excess or rejected risks shall not be required to hold a license to represent the insurer accepting such excess or rejected risks.
56-SlOa. Expiration and renewal of licenses; requests for renewai.-(1)-Each license issued to an agent shall expire at midnight on the last day of February following the date of issue, unless prior thereto it is revoked or suspended by the Commissioner or the authority of the agent to act for the insurer is terminated.
(2) In the absence of a contrary ruling by the Com- _ missioner, license renewals may be issued from year to year upon request of the insurer, without further action on the part of the licensee ; Provided, the licensee has paid fees and taxes as provided in Chapter 56-13.
(3) Each license issued to a counselor shall expire at midnight on the last day of February following the date of issue, unless prior thereto it is revoked or suspended by the Commissioner.
(4) Each request for renewal of license shall show whether the licensee devotes all or part of his efforts to acting as an agent or counselor, and, if part only, how much time he devotes to such work and in what other business or businesses he is engaged or employed.
(5) Upon the filing of a request for renewal of license, the current license shall continue in force until the renewal license is issued by the Commissioner or until the Commissioner has refused for cause to issue such renewal license, as provided in section 56-813a, and has given notice of such refusal in writing to the insurer and the agent or to the counselor.
56-Slla. Temporary licenses.-Any other provision of this Chapter to the contrary notwithstanding, the Com-

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missioner, if satisfied with the trustworthiness of the applicant for an agent's license, may, without requiring a written examination, issue a temporary license:
( 1) To the executor or administrator of the estate of a deceased person who at the time of his death was a licensed agent, or to the person or persons assisting an agent who is totally disabled;
(2) To a surviving next of kin of such deceased person if no administrator or executor has been appointed or qualified, but any license issued under this subsection shall be revoked upon issuance of a license to an administrator or executor under subsection (1) of this section;
(3) To any person who has been appointed or who is being considered for appointment as an agent by an insurer immediately upon receipt by the Commissioner of an application executed by such person in the form required by section 56-804a (1), together with a certificate signed by an officer or properly authorized representative of such insurer stating:
(a) That such insurer has investigated the character and background of such person and is satisfied that he is trustworthy;
(b) That such person has been appointed or is being considered for appointment by such insurer as its agent; and
(c) That such insurer desires that such person be issued a temporary license: Provided, however, that if such temporary license shall not have been received from the Commissioner within seven days from the date on which the application and certificate were delivered to or mailed to the Commissioner, the insurer may assume that such temporary license will be issued in due course and may continue such person in its employment;
(4) To an applicant for license pending completion

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of the examination herein provided: Provided, that a temporary license issued under this section shall be effective for ninety (90) days unless sooner terminated for cause pursuant to the provisions of this Chapter.
56-812a. License revoked upon termination of appointment of agent; relative information as privileged
communication.-(1) Every insurer shall, upon termination of the appointment of any agent, immediately file with the Commissioner a statement of the facts relative to the termination of the appointment and the date and cause thereof. The Commissioner shall thereupon terminate the license of such agent to represent such insurer in this State.
(2) Any information, document, record or statement required to be made or disclosed to the Commissioner pursuant to this section shall be deemed a privileged communication and shall not be used as evidence in any court action or proceeding.
56-813a. Refusal, suspension or revocation of license; notice; hearing; revocation as bar to issuance of new
license; appeal.-(1) A license may be refused, or a license duly issued may be suspended or revoked or the renewal thereof refused by the Commissioner if, after notice and hearing as hereinafter provided, he finds that the applicant for, or holder of such license:
(a) Has wilfully violated any provision of the insurance laws of this State; or
(b) Has intentionally made any material misstatement in the application for such license; or
(c) Has obtained, or attempted to obtain, such license by fraud or misrepresentation; or
(d) Has misappropriated or converted to his own use or illegally withheld money belonging to an insurer or an insured or beneficiary; or

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(e) Has otherwise demonstrated lack of trustworthiness or competence to act as an agent or counselor; or
(f) Has been guilty of fraudulent or dishonest practice; or
(g) Has materially misrepresented the terms and conditions of insurance policies or contracts; or
(h) Has made or issued, or caused to be made or issued, any statement misrepresenting or making incomplete comparisons regarding the terms or conditions of any insurance or annuity contract legally issued by any insurer, for the purpose of inducing or attempting to induce the owner of such contract to forfeit or surrender such contract or allow it to lapse for the purpose of replacing such contract with another; or
(i) Has obtained, or attempted to obtain such license, not for the purpose of.holding himself out to the general public as an agent or counselor, but primarily for the purpose of soliciting, negotiating or procuring insurance or annuity contracts covering himself or members of his family, or the officers, directors, stockholders, partners, employees, of a partnership, association, or corporation of which he or a member of his family is an officer, director, stockholder, partner or employee.
(2) Before any agent's or counselor's license shall be suspended or revoked or the renewal thereof refused hereunder, the Commissioner shall give notice of his intention so to do, by registered mail, to the applicant for, or holder of such license and the insurer whom he represents or who desires that he be licensed, and shall set a date not less than twenty (20) days from the date of mailing such notice when the applicant or licensee and a duly authorized representative of the insurer may appear to be heard and produce evidence. In the conduct of such hearing, the Commissioner or any deputy Commissioner specially designated by him for such purpose shall have power to administer oaths, to require the ap-

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pearance of, and examine any person under oath, and to require the production of books, records, or papers relevant to the inquiry upon his own initiative or upon request of the applicant or licensee. Upon termination of such hearing, findings shall be reduced to writing and, upon approval by the Commissioner, shall be filed in his office and notice of the findings sent by registered mail to the applicant or licensee and the insurer concerned.
(3) No licensee whose license has been revoked hereunder shall be entitled to file another application for a license within one year from the effective date of such revocation or, if judicial review of such revocation is sought, within one year from the date of final court order or decree affirming such revocation. Such application when filed, may be refused by the Commissioner unless the applicant shows good cause why the revocation of his license shall not be deemed a bar to the issuance of a new license.
(4) Any applicant whose application for an agent's or counselor's license has been rejected (except for failure to pass a required written examination) shall, upon request therefor in writing within ten (10) days after notice of such rejection, be entitled to a hearing as provided for by this section and the procedure set forth by this section shall apply to the same.
(5) Appeal from any order or decision of the Commissioner made pursuant to this Chapter shall be taken as provided in Chapter 56-2.
56-814a. Notice of change of address by licensee.Every licensed agent or counselor shall inform the Commissioner promptly in writing of a change of his principal business address.
56-SlSa. Rules and regulations established by Commissioner.-The Commissioner is hereby authorized to establish such rules and regulations as shall be necessary for the administration of this Chapter.

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56-816a. Inquisitorial powers in conduct of hearings; evidence adduced as privileged.-For the purpose of making such investigation as he may deem necessary for the proper administration of this Chapter, the Commissioner or his deputy specially designated by him for the purpose of conducting a hearing or an investigation shall have inquisitorial powers and shall be empowered to subpoena witnesses and examine them under oath: Provided that all testimony, documents and other evidence required to be submitted to the Commissioner, pursuant to this Chapter, shall be privileged.
56-817a. License without examination of persons presently acting as agents.-Agents holding licenses authorizing them to transact business in this State on the effective date of this Chapter shall continue to be so authorized to the same extent as if such agents had been examined pursuant to this Chapter and duly licensed.
CHAPTER 56-88
AGENTS, SOLICITORS, BROKERS, COUNSELORS AND ADJUSTERS-PROPERTY, CASUALTY, SURETY AND ALLIED LINES.
56-80lb. Definitions. 56-802b. Individuals only to be licensed. 56-803b. License required. 56-804b. Qualifications for license. 56-805b. Application for license. 56-806b. Examination of applicant. 56-807b. Classification of applicants. 56-808b. Examination textbooks and manuals. 56-809b. Effect of failure. 56-810b. Temporary licenses; issuance. 56-811b. Limited licenses; procedure where limited li-
cense holder applies for general license. 56-812b. Special adjuster's licens~ . 56-813b. Issuance of licenses and contents. 56-814b. Expiration and renewal of licenses; fee. 56-815b. Special license of persons selling travel ticket
insurance.

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56-816b. Licenses; nonresident agents and brokers. 56-817b. When risk deemed to have situs within this
State; necessity for signature of resident agent; exceptions; service of process where business transacted by nonresident agent; venue of actions. 56-818b. Expiration of license not to deprive agent of acquired rights; procedure where agency sold on "work out" basis. 56-819b. Agent prohibited from signing policy in blank; restriction on delegation of authority to sign. 56-820b. Placement of insurance beyond scope of license prohibited ; restriction on commission sharing; placement of insurance with nonlicensed insurers prohibited; penalties for violation. 56-821b. Insurers prohibited from putting insurance into force on property located in this State except through licensed agents or brokers. 56-822b. Countersigning by resident agent required ; commission for countersigning. 56-823b. Classification of licenses; license to state kinds of insurance covered ; notice of appointment and license number of agents. 56-824b. Grounds for refusal; suspension and revocation of license. 56-825b. Inquiry by Commissioner into conduct of agent. 56-826b. Notice of intention to revoke or suspend license; hearings; findings reduced to writing and filed; failure to answer subpoena as misdemeanor; appeals. 56-827b. Waiting period after revocation. 56-828b. Applicant entitled to hearing after rejection. 56-829b. Effect of existing licenses; renewal. 56-830b. Information to be furnished by agent, broker, solicitor, counselor or adjuster to Commissioner. 56-831b. Service representative prohibited from acting as agent; permits for service representatives.
56-832b. Licenses and permits not to be transferred. 56-833b. When excess insurance may be placed. 56-834b. Pe<nalty for acting or holding self out to act as
agent, broker, solicitor, counselor or adjuster

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56-835b.
56-836b. 56-837b. 56-838b. 56-839b. 56-840b. 56-841b. 56-842b. 56-843b. 56-844b. 56-845b. 56-846b. 56-84 7b. 56-848b.

for insurer which has not obtained certificate. Contract issued or countersigned by unauthorized person not unenforceable. Scope of broker's license. Broker's bond. Broker's authority; commissions. Agent-broker license combination. Special limitations as to solicitors. [Reserved]. Adjusters; qualifications for license. Separate licenses for adjusters; authority. Agent may adjust; nonresident adjusters. Public adjuster's bond. Place of business. Records of agents, brokers and adjusters. Reporting and accounting for premiums.

56-80th. Definitions.-Except where the type of insurance is specifically stated, the word "insurance" when used in this Chapter, shall include all kinds of insurance other than life, sickness, accident, hospital, medical service and title insurance, and bail bonding by individual sureties.

(1) "Agent" shall mean an individual, appointed or employed by.an insurer who solicits insurance or procures applications therefor, or who in any wise, directly or indirectly, makes or causes to be made any contract of insurance for or on account of an insurer, or who as representative of an insurer receives or receipts for money for transmission to the insurer for a contract of insurance, anything in the application or contract to the contrary notwithstanding. The term "agent" as used in this Chapter shall not include a person acting for or as a collection agency, or an attorney at law admitted to practice in this State, when handling the collection of one or more premiums as a collection matter, nor shall it include a person who shall perform exclusively clerical work, or exclusively
work of an office of an insurer or representative thereof not involving solicitation of insurance, signing or countersigning of contracts, or the receipts of premiums. The

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term "agent" includes subagent.
(2) "Agency" shall mean a person as sole proprietor, or a partnership or corporation, representing one or more insurers and being engaged in the business of soliciting or procuring insurance or applications therefor, or countersigning or issuing or delivering contracts of insurance for one or more insurers.
(3) "Service representative" shall mean an individual other than an officer, manager, general agent or supervising or managing general agent or special agent of the insurer, employed by an insurer, its general agent, or representative to work with and assist agents in servicing, soliciting, negotiating and effectuating insurance in such insurer or in the insurers represented by such general agent or representative.
(4) "Limited surety agent" shall mean an individual appointed by an insurer that is engaged in fidelity insurance business, by power of attorney, to execute and/ or countersign only release of attachment bonds and bail bonds in connection with judicial proceedings.
(5) A "broker" is an individual who for compensation as an independent contractor, solicits, procures or negotiates insurance or the renewal or continuance thereof, on behalf of insureds or prospective insureds other than himself and not on behalf of an insurer or agent.
(6) A "solicitor" is an individual appointed and authorized by a licensed agent or broker to solicit applications for insurance as a representative of such agent or broker and to collect premiums in connection therewith.
(7) The term "counselor" shall mean any person who engages or advertises or holds himself out as engaging in the business of counseling, advising or rendering opinions as to the benefits promised under any contract of insurance issued or offered by any insurer, or as to the terms, value, effect, advantages or disadvantages thereof, in

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exchange for a fee, commission or other compensation other than as a consulting actuary advising insurers.
(8) "Adjuster" is defined as follows:
(a) "Adjuster" means any person who, for compensation or for fee or commission, investigates, settles or adjusts and reports to his employer or principal, relative to claims arising under insurance contracts, solely on behalf of the insurer or the insured ;
(b) "Independent adjuster" means such an adjuster representing the interest of the insurer;
(c) "Public adjuster" means an adjuster employed by and representing solely the financial interest of the insured named in the policy;
(d) Not inCluded within the definition are:
(i) Persons who adjust claims arising under contracts of life or marine insurance or annuities;
(ii) A licensed attorney at law who is qualified to practice law in this State who from time to time adjusts losses which are incidental to the practice of his profession;
(iii) An agent or a salaried employee of an agent who adjusts or assists in adjusting losses under policies issued by such agent or insurer.
(iv) A salaried employee of an insurer who undertakes on behalf of such insurer or other insurers under common control or ownership to ascertain and determine the amount of any claim, loss or damage payable under a contract of insurance, and/ or undertakes to effect settlement of such claim, lOflS or damage ; provided the name of such employee is filed with the Insurance Commissioner by the insurer or insurers on behalf of which he acts.
(v) A salaried employee of a credit or character re-

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porting firm or agency not engaged in the insurance business but who may report to an insurer.
(9) "Controlled business of a person" shall mean insurance for himself or his spouse or for any relative by blood or marriage within the second degree of kinship as defined by Code section 112-903 (5) or for his employer or the firm of which he is a member, or for any officer, director, stockholder or member of his employer or of any firm of which he is a partner, or for any spouse of such officer, director, employer, stockholder or member of his firm, or for his ward or employee, or for any person or in regard to any property under his control or supervision in any fiduciary capacity.
(10) The definitions of agent, broker, solicitor, counselor and adjuster as stated in this Chapter shall not include the following:
(a) Any regular salaried officer or employee of an insurer or of an agent or broker who performs clerical or administrative services only in connection with any insurance transaction ;
(b) An attorney at law admitted to practice in this State in handling the collections of premiums or in advising clients as to insurance as a function incidental to the practice of law;
(c) Any representative of title or ocean marine insurers;
(d) Representative of farmers' mutual fire insurance companies as defined in Chapter 56-20.
56-802b. Individuals only to be licensed.-No license to act as an agent, solicitor, broker, counselor or adjuster shall be issued except to an individual.
56-803b. License Required.- (1) No person shall in this Stat{' act as or ho.ld himself out to be an agent, broker,

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solicitor, counselor or adjuster unless he shall first procure a license from the Commissioner.
(2) No agent, solicitor or broker shall solicit or take applications for, procure, or place for others any kind of insurance for which he is not then licensed.
(3) No insurer or agent doing business in this State shall pay, directly or indirectly, any commissions or any other valuable consideration to any person for services as an agent, broker, solicitor or adjuster within this State, unless such person shall be duly licensed in accordance with the provisions of this Chapter; nor shall any person other than a duly licensed agent, solicitor, broker or adjuster accept any such commission or other valuable consideration. The provisions of this section, however, shall not prevent the payment or receipt of renewal or deferred commissions by any person on the ground that he has ceased to be an agent, solicitor or broker, nor prevent the receipt or payment of any commission by a person who has applied for a temporary license pursuant to the provisions of this Chapter.
(4) Any p'erson wilfully violating any of the provisions in this Section shall be guilty of a misdemeanor, and shall be liable to a fine not to exceed five hundred ($500.00) dollars, or imprisonment, not to exceed one year for each instance of violation, or both.
56-804b. Qualifications for license.- ( 1) For the protection of the people of this State, the Commissioner shall not issue, continue or permit to exist any license, except in compliance with this Title, and except as provided in sections 56-8llb, 56-815b and 56-816b or as to any individual not qualified therefor as follows:
(a) Must be a citizen of the United States and a resident of this State who will reside and be present within this State for at least six months of every year: Provided, however, in cities, towns or trade areas (either unincorporated or comprised of two or more incorporated cities or towns) located partly within and partly without the State, re-

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quirements as to residence and principal place of business shall be deemed met if the residence or place of business is located in any part of the city, town or trade area and if the other State in which the city, town or trade area is located in part has established like requirements as to such residence and place of business;
(b) If for an agent's or broker's license, must not use or intend to use the license for the purpose of obtaining a rebate or commission upon controlled business, and that the applicant must not, in any calendar year, effect controlled business that will aggregate as much as 25 per cent of the volume of insurance effected by him during such year, as measured by the comparative amounts of premiums;
(c) If for an agent's license, must have been appointed agent by an authorized insurer, subject to issuance of the license;
(d) If for a solicitor's license, must have been appointed a solicitor subject to issuance of license;
(e) Must be of good character; (f) Must pass any written examination required for the license by the provisions of this Chapter; (g) If for a license as counselor, must show that applicant has had five years experience acting as either an agent, solicitor, broker or adjuster, or in some other phase of the insurance business which in the opinion of the Commissioner has qualified him to act as such counselor, and shall pass such examination as shall be required by the Commissioner: (h) If for a broker's license, applicant must have had experience either as an agent, solicitor, adjuster, or as an employee of insurers or special education or training of sufficient duration and extent reasonably to satisfy the Commissioner that he possesses the competence necessary to fulfill the responsibilities of broker, and shall pass such examination as shall be required by the Commissioner;
(i) If for an agent's license except as provided in subsection (3) below, and sections 56-81lb, 56-815b and 56-816b, no applicant for a license as an agent shall be qualified therefor or be so licensed unless he has:

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(I) Successfully completed classroom courses in insurance satisfactory to the Commissioner at a school, college, or extension division thereof, or schools operated by an insurance company or an insurance association, approved by the Commissioner; or
(II) Completed a correspondence course in insurance satisfactory to the Commissioner and has had at least six months of responsible insurance duties as a substantial full time bona fide employee of an agent, an insurer, their managers, general agents, or representatives, in the kind or kinds of insurance for which he seeks to be licensed; or
(III) Had at least one year in responsible insurance duties as a substantially full time bona fide employee of an agent, an insurer, their managers, general agents or representatives, in the kind or kinds of insurance which he seeks to be licensed, without the education require~ ment mentioned in subparts (I) or (II) above.
(2) Where applicant's qualifications as required in subparts (II) or (III) above are based in part upon the periods of employment at responsible insurance duties prescribed therein, the applicant shall submit with his application for license, on a form prescribed by the Commissioner, an affidavit setting forth the period of such employment, that the same was substantially full time, and giving a brief abstract of the nature of the duties performed by the applicant.
(3) An individual who was qualified to sit for an agent's or adjuster's examination at the time he was employed by the Commissioner and who while so employed was employed in responsible insurance duties as a full time bona fide employee shall be permitted to take an examination if application for such examination is made within 90 days after the date of termination of his employment with the Commissioner.
(4) This section does not apply as to any temporary license provided for in section 56-810b.
56-SOSb. Application for License.-(1) An applicant for any license required by the provisions of this Chapter shall file with the Commissioner a written application

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upon forms prescribed and furnished by the Commis~ sioner. The application shall be signed and verified by the oath of the applicant. As a part of or in connection with such application, the applicant shall furnish information concerning his identity, personal history, experience, business record, purposes and any other pertinent facts which the Commissioner may by regulation require.
(2) If the application is for an agent's license, such application shall state the kinds of insurance proposed to be transacted, and shall be accompanied by written appointment of the applicant as agent by an authorized insurer, subject to issuance of the license.
(3) If the application is for a solicitor's license, the application shall be accompanied by a written appointment of the applicant as solicitor by an agent or broker, subject to issuance of the license.
(4) The application shall also show whether the applicant was ever previously licensed to transact any kind of insurance in this State or elsewhere; whether any such license was ever refused, suspended or revoked; whether any insurer or general agent claims applicant to be indebted to it, and if so, the details thereof; whether applicant ever had an agency contract cancelled, and the facts thereof; whether applicant will devote all or part of his efforts to acting as an insurance agent, and if part time only, how much time he expects to devote to such work and in what other business or businesses he will be engaged; whether, if applicant is a married person, the husband or wife has ever applied for or held a license to solicit insurance in any state, and whether such license has been refused, suspended or revoked; and such other information as the Commissioner in his discretion may require.
(5) As to any such application for agent's or solicitor's license, the Commissioner shall require as part thereof the certificate of the insurer, agent or broker proposed to be represented, relative to the applicant's identity, residence, experience or instruction as to the kinds of insurance to

AGENTs,_ SoLICITORs, ETC.

56-806b

be transacted and shall state the extent and nature of the investigation of the applicant's character and background conducted by the insurer, and that he is satisfied that applicant is trustworthy and qualified to act as its agent and to hold himself out in good faith to the general public as an agent and that the insurer desires that the applicant be licensed as an agent to represent it in this State.
(6) All such applications shall be accompanied by the appropriate fees in the respective amounts stated, when required by the applicable provisions of this Title.
56-806b. Examination of applicant.-(1) After completion and filing of the application with the commissioner, each individual applicant for a license as agent, solicitor, broker, counselor or adjuster shall submit to a personal examination in writing as to his competence to act in such capacity. Such examination shall be prepared and given by the commissioner and shall be given and graded in a fair and impartial manner and without unfair discrimination as between individuals examined. Any written examination may be supplemented by an oral examination at the discretion of the commissioner. The commissioner shall provide by regulation for a reasonable waiting period before giving a reexamination to an applicant who failed to pass a previous similar examination.
(2) Scope of such examination shall be limited as follows:
(a) Examination of an applicant for an agent's license shall cover only the kinds of insurance or divisions thereof defined in this Title which the insurer desires to appoint the applicant to transact in its behalf;
(b) Examination of an applicant for a broker's license shall cover all kinds of insurance as to which the applicant is to be licensed or as provided in section 56-836b;
(c) Examination for a solicitor's license shall cover all kinds of insurance as to which the appointing agent or broker is licensed;
(d) Examination for an adjuster's license shall be in such kind or kinds of insurance as the applicant shall select, and for which, from experience, he is qualified;

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(e) Examination for an insurance counselor's license shall be in such kind or kinds of insurance as the applicant shall select.
(3) This section shall not apply to and no such examination shall be required of the following:
(a) An applicant for a renewal license; (b) An applicant who is a ticket-selling agent of a railroad or steamship company, carrier by air or public bus carrier who shall act as agent or solicitor in the sale of trip accident insurance and jor baggage insurance policies or contracts to individuals; (c) Applicant for license as nonresident agent or nonresident broker, but subject to reciprocal arrangements as provided for in section 56-816b; (d) Any applicant for license covering the same kind
or kinds of insurance as to which the .applicant was licensed in this State within the 12 months next preceding the application;
(e) Any applicant for an adjuster's license who has paid the occupation tax for adjusters for the period immediately preceding the effective date of this Title;
(f) Any applicant for a license as an agent, solicitor, broker, counselor or adjuster who shall furnish to the satisfaction of the commissioner proof that he has successfully completed all of the examinations prescribed by the Society of Chartered Property and Casualty Underwriters of the American Institute for Property and Liability Underwriters, Inc., leading to the degree of a chartered property and casualty underwriter.
(g) Any applicant for a license to act as an agent, solicitor, broker, counselor or adjuster who held a valid license to act as such which expired while such applicant was a member of any branch of the Armed Forces of the United States may be issued a renewal license without the necessity of taking an examination if he shall apply for a renewal thereof within a period of five (5) years from the date of the expiration of his old license and furnish proof satisfactory to the Commissioner that:
(i) he was a member of the Armed Forces of the United States at the time his old license expired, and
(ii) his service in the Armed Forces of the United

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States was not terminated more than one (1) year prior to the date upon which he applies for a renewal license.
56-807b. Classification of applicants.-The Commissioner may establish rules and regulations with respect to :
(1) The classification of applicants according to the kinds of insurance to be effected by them if licensed as agents;
(2) The scope, type and conduct of written examinations to be given pursuant to this Chapter, and the times and places within this State for holding such examinations: Provided, however, that applicants shall be afforded the opportunity of examinations in all classifications at least semimonthly in the principal office of the Commissioner and at least once every two months in each Congressional District.
(3) All other applicants, except those who apply for a limited license under section 56-Sllb, shall be classified in one or both of following:
(a) Property and allied lines.
(b) Casualty, surety and allied lines.
56-808b. Examination textbooks and manuals.-The rules and regulations of the Commissioner shall designate textbooks, manuals and other materials to be studied by the applicant in preparation for examinations in each classification designated by the Commissioner. Such textbooks, manuals or other materials may consist of matter available to applicants by purchase from the publisher or may consist of matter prepared at the direction of the Commissioner and distributed to applicants upon request therefor and payment of reasonable costs. When textbooks, manuals or other materials shall have been designated or prepared by the Commissioner, all examination questions shall be prepared from the contents of such textbooks, manuals or other materials.

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56-809b. Effect of failure.-Any applicant who shall have taken and failed to pass two examinations given pursuant to this Chapter with respect to a particular kind or kinds of insurance shall not be entitled to take any further examination with respect to such kind or kinds until after the expiration of six months from the date of the last examination in which he failed. If such person shall thereafter fail to pass another such examination he shall not be eligible to take any further examination until the expiration of one year from the date of his last unsuccessful examination. This rule applies ad infinitum. The examination fee shall be paid for each and every examination.
56-SlOb. Temporary licenses; issuance.-In the event of the death of an agent or broker, including a temporary agent, or the inability to act as an agent or broker by reason of service in the armed services of the United States, or illness or other disability or termination of appointment by insurer, and if there is no other individual connected with the agency who is licensed as an agent in regard to insurance of the classification transacted by the agent deceased or unable to act, the Commissioner may issue a temporary license as agent in regard to insurance of such classification, to an employee of the agency, to a member of the family of said former agent, or to some associate of his, or to his guardian or receiver or executor or administrator, for the purpose of continuing or winding up the business affairs of the agent or agency. A temporary license shall issue only to an applicant who has filed a sworn application upon forms prescribed and furnished by the Commissioner. Such applicant shall not be required to meet the requirements as to examination, residence and education required for licensing of agents other than temporary agents. If the Commissioner deems the applicant to be qualified for a temporary license, he shall issue same. It shall be effective for six months, renewable from time to time for renewal periods of three months in the discretion of the Commissioner, but in no event shall such renewal, or any other temporary license of renewal with reference to the same matter, extend to a time more than

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fifteen (15) months after the date of the first issuance of a temporary license in such matter. A temporary license shall authorize the negotiation of renewal policies, the receipt and collection of premiums, and such other acts as are necessary to the continuance of the particular insurance business of such agent or broker. Such license shall not authorize the holder thereof to solicit, negotiate or procure new insurance accounts.
56-Sllb. Limited licenses; procedures where limited license holder applies for general license.- ( 1) The Commissioner may issue a limited automobile agent's license to an individual qualifying therefor by taking and passing an examination limited to such subjects as relate to J!)hysical damage insurance on motor vehicles.
(2) The Commissioner may issue a limited property agent's license to an individual qualifying therefor by taking and passing an examination limited to such subjects as relate to monthly or weekly premium property insurance. Provided, however, that the Commissioner may issue a special temporary license for a period not exceeding ninety (90) days to an individual, otherwise qualified, who will, by the termination of such ninety (90) day period take the aforesaid examination. Such a temporary license shall authorize the negotiation of renewal policies, the receipt and collection of premiums, and such other acts as are necessary to the continuance of the particular insurance business of such agent or broker. Such license shall not authorize the holder thereof to solicit, negotiate, or procure new insurance accounts. Not more than one (1) such temporary license shall be issued to any one (1) person.
(3) The Commissioner may issue a limited surety agent's license to an individual qualifying therefor by taking and passing an examination limited to such subjects as relate to limited surety agents.
(4) The Commissioner may issue a limited casualty agent's license to an individual qualifying therefor by

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taking and passing an examination covering all kinds of casualty insurance, excluding workmen's compensation insurance and fidelity and surety bonds.
(5) The Commissioner may issue a limited agent's license to an individual qualifying therefor by passing and taking an examination covering credit insurance only, as such insurance is defined in Section 56-408 (8).
(6) The applicant taking and passing an examination limited in scope as hereinabove provided shall be entitled to a license similarly limited in scope, which limitation shall be expressed in said license.
(7) Except as otherwise provided, the prov1s10ns of this Chapter relating to agents generally, including fees and taxes, shall be applicable to individuals applying for or holding a limited agent's license: Provided, however, that when the holder of a limited license as hereinabove enumerated shall apply for an agent's license as stated in section 56-823b, he shall qualify -therefor by taking and passing an examination limited in scope to those subjects of insurance not included in his limited license. The fee for such additional examination shall be as provided in Chapter 56-13.
56-812b. Special adjuster's license.-Nothwithstanding any other provisions of this Title, the commissioner may issue a special crop adjuster's license to an individual qualifying therefor by taking and passing an examination limited to such subjects as related to crop losses due to acts of God.
56-813b. Issuance of Licenses and Contents.-(!) The Commissioner shall promptly issue licenses applied for to persons qualified therefor in accordance with this Chapter.
(2) The license shall state the name and address of the licensee, date of issue, general conditions relative to expiration or termination, kind or kinds of insurance covered and the other conditions of license.

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(3) If the licensee is a solicitor, the license shall state the name and address of the agent or broker to be represented.
56-814b. Expiration and renewal of licenses; fee.-At midnight of the last day in February in every year, each license then in effect shall expire unless renewed. A renewal thereof may be issued not more than forty-five (45) days before the yearly period to which it shall apply, or during such period, but shall have no retroactive effect. Upon the filing of an application for renewal accompanied by fee as provided for in Chapter 56-13, a renewal for one yearly period ending at the end of February shall be issued by the Commissioner without examination, investigation or inquiry, unless after conforming to procedure for a hearing as set forth in Chapter 56-2 he has previously determined that such renewal should be refused or the license revoked or suspended, or unless the application disclose a disqualification of the applicant. If after the filing of an application for renewal for one year, in proper form and showing sufficient cause, thirty (30) days elapse without the sending to the applicant by the Commissioner of a notification of the disposition thereof, the renewal shall be deemed granted on a temporary basis pending consideration of the application for renewal.
56-SlSb. Special license of persons selling travel ticket insurance.-(!) The Commissioner may issue a special license, without examination, to individuals selling transportation tickets of a common carrier of persons and property, who shall act as agents only as to travel ticket policies of disability insurance or baggage insurance on personal effects. The Commissioner may prescribe and furnish such special forms calling for such information as he deems proper, in connection with application for or renewal of such special license.
(2) A licensed resident agent or broker may solicit applications for and issue policies of personal travel accident or baggage insurance by means of mechanical vending machines supervised by hiin at locations of convenience to the traveling public, if the Commission finds:

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(a) That the policy to be so sold provides reasonable coverage and benefits, is reasonably suited for sale and issuance through vending machines, and that use of such a machine therefor in a particular proposed location would be of material convenience to the public;
(b) That the type of vending machine proposed to be used is reasonably suitable and practical for the purpose;
(c) That reasonable means are provided for informing the prospective purchaser of any such policy of the coverage and restrictions of the policy; and
(d) That reasonable means are provided for refund to the applicant or prospective applicant of money inserted in defective machines and for which no insurance, or a less amount than that paid for, is actually received.
(3) As to each machine to be so used, the Commissioner shall issue to the agent a special vending machine license. The license shall specify the name and address of the insurer and agent, the name of the policy to be sold, the serial number of the machine, and the place where the machine is to be in operation. The license shall be subject to annual continuation, to expiration, suspension or revocation coincidentally with that of the agent. The Commissioner shall also revoke the license as to any machine as to which he finds that the conditions upon which the machine was licensed, as referred to in subsection (2), no longer exist. The license fee shall be as provided for in Chapter 56-13 for each license year or part thereof for each respective vending machine. Proof of the existence of a current license shall be displayed on or about each such vending machine in use in such manner as the Commissioner may reasonably require.
56-81Gb. Licenses; Nonresident agents and brokers.-
An individual residing in another state, licensed therein as an agent or broker, may be licensed by the Commissioner as a nonresideRt agent or broker under the following circumstances, in the following manner:

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(1) Upon written application certifying that the applicant will not negotiate or effect a contract of insurance on property or a risk having situs in this State with any insurer not qualified to do business in this State, and upon payment of the required license fee and without requiring a written examination, the Commissioner shall issue a license to an individual to act as nonresident agent or broker who is otherwise qualified therefor under this Title, but who is not a resident of this State, if by the laws of the state of his residence, residents of this State may be licensed in such manner as nonresident agents or brokers of such state. The license by the Commissioner shall be of a classification provided herein and for which the applicant has been licensed in the other state.
The required license fee for such license shall be as provided in Chapter 56-13 or the sum which is charged as a license fee for nonresident agents or brokers by the state of the applicant's residence, whichever is larger.
(2) No such license, however, shall be issued to a nonresident who maintains an office as an insurance agent or broker in this State, or who is a member or an employee of a firm or association or is aJl offi<:er, director, stockholder or employee of a corporation which maintains an office as an insurance agency or broker in this State. Nor shall such license be issued to any individual who does not hold ;:m agent's or broker's license issued by the state of his residence.
56817b, When risk deemed to have situs within this State; necessity for signature of resident agent; exceptiop~; st;lrvice of proct;lss where businel}s trans~cted by nonresident agent; venut;l of actions..-
( 1) A risk shall be deemed to have a situs in this State
if the insurance is upon or in regard to property having a
permanent situs in this State or is movable property which is actually in this State or is prin(lipa,lly used or kept in this State.

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(2) All insurance contracts on risks or property located or having a situs in this State shall bear the countersignature of an agent who resides in the State of Georgia and is licensed pursuant to this Chapter, except:
(a) Any contract of insurance covering the rolling stock of any railroad or covering any vessel, aircraft or motor vehicle used in interstate or foreign commerce, or covering any liability or other risks incident to the ownership, maintenance or operation thereof;
(b) Any contract of property insurance upon property of railroad companies and other common carriers;
(c) Any contract of insurance covering any property in transit while in the custody of any common carrier, or any liability or risk incident to such carrier;
(d) Any contract of reinsurance between insurers; or
(e) Bid bonds issued by any surety insurer in connection with any public or private building or construction project.
(3) A nonresident who is the holder of a nonresident agent's or broker's license from the State of Georgia shall not directly or indirectly solicit, negotiate or effect insurance contracts in this State unless accompanied by a countersigning agent licensed pursuant to this Title: Provided, however, that a solicitor or service representative of an insurer qualified to do business in this State and which maintains a regional or service office in this State may solicit, negotiate, or effect insurance contracts in this State if accompanied by, or acting for the benefit of, a resident licensed agent and if such insurance contracts are countersigned by a resident licensed agent.
(4) Each nonresident agent or broker by obtaining a license in this State or by doing business in this State shall be deemed to have consented that any notice provided in this Title, and any summons, notice or process in connec-

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tion with any action or proceeding in any State or Federal

court in this State growing out of or based upon any busi-

ness or acts done or omitted to be done in this State may

be sufficiently served upon him by serving the same upon

the Commissioner. Such service shall be made by leaving

a copy of the notice, summons or process with a fee oftwo

($2.00) dollars in the hands of the Commissioner, and

such service shall be sufficient service upon the nonresi-

dent agent or broker, provided that notice of such service

and a copy of the notice, summons or process are forth-

with sent by registered mail by the plaintiff or by the

Commissioner to the residence of the nonresident agent

or broker, addressed to such agent or broker, and the non-

resident agent's or broker's return receipt and the affi-

davit of compliance herewith made by plaintiff or plain-

tiff's attorney or by the Commissioner are appended to

the notice, summons or process and filed with said case in

the court where it is pending or filed with the Commis-

sioner if in regard to a proceeding provided under this

;

Title. Venue of such a suit shall be in the county of the

residence of a plaintiff in the suit, if plaintiff res~des in

this State; otherwise in Fulton County. The place of resi-

dence of a licensed nonresident agent or broker placed on

file by him with the Commissioner shall be deemed to be

his place of residence until such agent or broker places

on file with the Commissioner a written notice stating

another place of residence. The term "process" shall in-

clude a petition attached thereto.

56-818b. Expiration of license not to deprive agent of
acquired rights; procedure where agency sold on "work out" basis.-The expiration of the license of an agent, broker or solicitor shall not deprive him, or his executors or administrators, of any right that he may have acquired by contract made before such expiration to receive all or a portion of commissions upon contracts of insurance written before such expiration, with reference to the periods of time during which such contracts are in effect, including renewal option periods therein provided.

In case of a sale of an agency upon a "work out" basis,

J

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the vendor without maintaining or renewing his license, and his executors and administrators, may participate in the proceeds of premiums on insurance written by the purchaser of the agency, when and as authorized to do so by the contract of sale of the agency, and this participation may be without limitation of time after the vendor ceased to hold an agent's license. An agent whose license has expired may, if authorized by the insurer, countersign certificates and endorsements necessary to continue coverage to the expiration date, including renewal option periods.
56-819b. Agent prohibited from $i~ning policy in
blank; restriction on delegation of authority to sign.-An agent shall not sign nor countersign in blank any policy to be issued outside of his office, nor countersign in blank any endorsement therefor, nor shall he give power of attorney to, or otherwise authorize, anyone to sign or countersign his name to policies unless the person so authorized is directly employed by the agent and no other person, and has no office files, equipment or address in regard to insurance business, other than in the office of such agent.
I
56-820b. Placement of insurance beyond scope of li-
cense prohibited; restriction on commission sharing;
placement of insurance with nonlicensed insurers prohib-
ited; penalties for violation.-No agent, broker or solicitor shall place any insurance or receive any remuneration in regard to any insurance of a classification outside the scope of his license, nor shall he share a commission except with an agent, broker or solicitor licensed pursuant to this Chapter, or with an agency that has as its proprietor or as a partner in the agency or as an officer or employee of the agency one or more agents licensed in regard to insurance that is within the scope of his agency, or with an agent, agency, solicitor or broker having a residence or situs in another state and a license from such other state for the transaction of insurance therein. Except as provided in this Title, no person shall solicit or be instrumental in placing insurance upon any risk having a situs in

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this State except with an insurer admitted to do insurance business in this State. Violation of this section shall authorize, among other penalties, the revocation of the violator's license as an agent, broker or solicitor. Thereupon such violator shall not be issued a new license until at least two years after the time when the revocation becomes effective.
56-821b. Insurers prohibited from putting insurance into force on property located in this State except through licensed agents or brokers.-No insurer shall issue, make, write, place or cause to be made, written, placed or issued any contract of insurance, indemnity or suretyship covering risks or property located or having a situs in this State or covering any liability created by or arising under the laws of this State, except through an agent or broker or agents or brokers licensed pursuant hereto, except that bid bonds issued by any surety insurer in connection with any public or private building or construction project may be issued without regard to this section.
56-822b. Countersigning by resident agent required; commission for countersigning.-Except as provided in section 56-817b, subsection (2), all insurance contracts on risks or property located or having a situs in this State must be countersigned by a resident agent duly licensed hereunder and if a licensed nonresident agent or broker participates in the effectuation of such contract, such resident agent shall be entitled to the same commission as allowed by the state of residence of the licensed nonresident, but in any event not more than fifty (50%) percent of the commission. If effectuated by an unlicensed nonresident agent, solicitor or broker, the licensed Georgia agel).t countersigning shall retain one hundred (100 % ) percent of the commission. Nothing contained in this section shall be construed to require a company to make additional compensation in the way of commissions or otherwise to a person who is paid on a salary basis.
56-823b. Classification of licenses; license to state kinds of insurance covered; notice of appointment and

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license number of agent.-Licenses other than limited licenses shall be issued in one or both of the following two classifications:
(1) Property and allied lines;
(2) Casualty, surety and allied lines.
The license shall state under each classification the kind or kinds of insurance thereof for which the applicant has passed the examination required by section 56-806b. An agent shall not be required to have any additional license because of having been appointed as agent by more than one insurer doing business in one of these classifications. An insurer appointing a currently licensed agent must furnish notice to the Commissioner on such forms prescribed by the Commissioner, giving notice of the appointment and the current license number issued to the agent, and shall notify the Commissioner of any termination of an appointment.
56-824b. Grounds for refusal; suspension and revocation of license.-A license may be refused, or a license duly issued may be suspended or revoked or the renewal thereof refused by the Commissioner if he finds that the applicant for, or holder of such license:
(1) Has violated any provision of this Title or of any other law of this State relating to insurance as herein defined, or relating to another type of insurance; or
(2) Has intentionally misrepresented or concealed any material fact in the application for such license; or
(3) Has obtained, or attempted to obtain, such license by misrepresentation, concealment or other fraud; or
(4) Has misappropriated, converted or unlawfully withheld money belonging to an insurer or an insured; or
(5) Has materially misrepresented the provisions of an insurance policy; or

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(6) Has committed fraudulent or dishonest practices in the business of insurance ; or
(7) Has been convicted by final judgment in any State or Federal court of a felony involving moral turpitude; or
(8) Has knowingly participated in the writing or issuance of substantial over-insurance of any property insurance risk ; or
(9) Has failed to pass an examination required pursuant to this Title; or
(10) Has wilfully failed to comply with, or has wilfully violated, any proper order, rule or regulation issued by the Commissioner; or
(11) Has failed or refused, upon demand, to pay over to an insurer that he represents or has represented, any money coming into his hands and belonging to the insurer; or
. (12) Has otherwise shown lack of trustworthiness or lack of competence to act as an agent; or
(13) Is not in good faith carrying on business as an ;:tgent but on the contrary is holding his license for the purpose of securing rebates or commissions on controlled business.
56-825b. Inquiry by Commissioner into conduct of agent.-The Commissioner may, upon his own motion, and shall upon a written complaint signed by a citizen of this State and filed with the Commissioner, inquire into any alleged illegal or improper conduct of any licensed agent, broker, solicitor, counselor or adjuster or of any nonresident agent or broker licensed in this State, or into the question of whether a licensed agent, broker, solicitor, counselor or adjuster or a nonresident agent or broker licensed in this State, is untrustworthy or not competent or not qualified to act as an agent, broker, solicitor, coun-

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selor or adjuster or nonresident agent or broker, as the case may be. No finding or decision adverse to any person in regard to whom such inquiry is conducted shall be made by the Commissioner until after notice and hearing as provided in section 56-826b.
56-826b. Notice of intention to revoke or suspend license; hearings; findings reduced to writing and filed; failure to answer subpoena as misdemeanor; appeals.-
Before any license shall be suspended or revoked, or the renewal thereof refused hereunder, the Commissioner shall give notice of his intention so to do to the applicant for, or holder of such license and any insurer or agent whom he represents or who desires that he be licensed and shall set a date not less than twenty (20) days from the date of service of such notice when the applicant or licensee and a duly authorized representative of the insurer or agent may appear to be heard and produce evidence. Notice to such licensee or applicant shall be deemed to have been perfected upon the agent if (and within three days after) such notice is sent by registered mail to the last address of the licensee or applicant that has been filed by such licensee or applicant with the Commissioner.
In the conduct of such hearing, the Commissioner or any deputy commissioner specially designated by him for such purpose shall have power to administer oaths, to require the appearance of, and examine any person under oath, and to require the production of books, records, and papers relevant to the inquiry upon his own initiative or upon request of the applicant or licensee. Upon termination of such hearing, findings shall be reduced to writing and, upon approval by the Commissioner, shall be filed in his office and notice of the findings sent by registered mail to the applicant or licensee and the insurer concerned. Any person wilfully failing or refusing to honor a subpoena issued by the Commissioner or any duly appointed deputy commissioner shall be deemed guilty of a misdemeanor.

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56-830b

Appeal from any order or decision of the Commissioner made pursuant to this Chapter shall be taken as provided in Chapter 56-2.
56-827b. Waiting period after revocation.-No licensee whose license has been revoked hereunder shall be entitled to file another application for a license as an agent, broker, solicitor, counselor or adjuster within two years from the effective date of such revocation, or if judicial review of such revocation is sought, within two years from the date of final court order or decree affirming such revocation. Such application when filed may be refused by the Commissioner unless the applicant shows good cause why the revocation of his license shall not be deemed a bar to the issuance of a new license.
56-828b. Applicant entitled to hearing after rejection. -Any applicant whose application for a license has been rejected (except for failure to pass a required written examination) shall, upon request therefor in writing within ten (10) days after notice of such rejection, be entitled to a hearing as provided for by section 56-826b and the procedure set forth by said section shall apply to the same.
56-829b. Effects of existing licenses; renewals.-Agents holding licenses authorizing them to transact insurance business in this State on the effective date of this Act and adjusters paying the license fee for adjusters for the period immediately preceding the effective date of this Act shall continue to be authorized to the same extent as if such agents or adjusters had been examined pursuant to this Title and duly licensed, but such authorization shall expire at midnight on the last day of February next following the effective date of this Act, unless terminated earlier or renewed as provided herein.
56-830b. Information to be furnished by agent, broker, solicitor, counselor or adjuster to Commissioner.-Every agent, broker, solicitor, co~nselor or adjuster holding a license hereunder shall keep the Commissioner advised of

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150

his office address; his residence address; the name and address of each insurer that he represents directly or indirectly; the name and address of each agency of which he is proprietor, partner, officer, director or employee, or which he represents; every trade name of such agency, and the names of all partners and members of any firm or association and the corporate name of any corporation owning or operating such agency. Such information shall be transmitted in writing by the licensee to the Commissioner.
56-83th. Service representative prohibited from acting as agent; permits for service representatives.-No person who is a service representative shall act as an agent except when accompanied by or acting for the benefit of a licensed agent, broker or solicitor.
No person shall act in this State as a service representative unless he shall hold a permit issued by the Commissioner. The application for such permit shall be filed in writing by the insurer concerned, and shall show the name, residence address, name of employer, and the position or title of such representative and type of work to be performed by him in this State, and such additional information as the Commissioner may reasonably require. The annual expiration date of each permit shall be at midnight of the last day of February.
56-832b. Licenses and permits not to be transferred.Permits as above provided and licenses for agents, brokers, solicitors, counselors or adjusters shall not be transferable.
56-833b. When excess insurance may be placed.Nothing in this Chapter shall prevent the placing of surplus lines of property or casualty insurance when authorized and permitted under the provisions of this Title.
56-834b. Penalty for acting or holding self out to act as agent, broker, solicitor, counselor or adjuster for insurer which has not obtained certificate.-Any person who in this State shall act or purport to act, or hold himself out as an agent, broker, solicitor, counselor or ad-

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juster (or as an employee of an agent, broker, solicitor, counselor or adjuster), of or for ari insurer that has not obtained from the Commissioner a certificate of authority then in effect to do business in this State as required by this Title, and any person who in this State shall collect or forward any premium or portion thereof for or to,such insurer shall pay a sum equal to the State, county and municipal taxes and license fees required to be paid by the insurance companies legally doing business in this State (it being the Commissioner's duty to see that violators of this section are prosecuted), and such violator hereof shall also be personally liable, to the same extent as such insurer, upon every contract of insurance made by such insurer with reference to a risk having a situs in this State, if such person participated in the solicitation, negotiation or making of such contract or any endorsement thereon or modification thereof or in the collection of forwarding of any premium (or portion thereof) relating to such contract. This section shall have no reference to a contract of insurance entered into in accordance with Chapter 56-6.
56-835b. Contract issued or countersigned by unauthorized person not unenforceable.-Any contract of insurance issued or countersigned by a person prohibited by this Charter from so issuing or countersigning it shall not be rendered unenforceable by reason of such violation of this Chapter, but all persons knowingly participating in behalf of the insurer in such violation shall be deemed guilty of a misdemeanor.
56-836b. Scope of broker's Iicense.-A broker's license .shall orily be issued to cover all kinds of insurance. The Commissioner shall not issue a broker's license limited to particular kinds of insurance; except that a broker's license need not include life insurance and a broker may be separately licensed as to life insurance.
56-837b. Broker's bond.-(1) Every applicant for a broker's license shall file with the application and shall thereafter maintain in force while so licensed, a bond in favor of the Commissioner executed by an authorized

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corporate surety insurer. The bond may be continuous in form, and total aggregate liability on the bond may be limited to the payment of twenty-five hundred ($2,500) dollars. The bond shall be contingent on the accounting by the broker to any person requesting the broker to obtain insurance, for monies or premiums collected in connection therewith.
(2) Such bond shall remain in force until the surety is released from liability by the Commissioner, or until the bond is cancelled by the surety. Without prejudice to any liability accrued prior to such cancellation, the surety may cancel such bond upon thirty (30) days' advance notice in writing filed with the Commissioner.
56-838b. Broker's authority; commissions.- (1) A broker, as such, is not an agent or other representative of an insurer, and does not have power by his own acts, to bind the insurer upon any risk or with reference to any insurance contract.
(2) An insurer or agent shall have the right to pay to a broker licensed under this Chapter, or under the laws of any other state, and such broker shall have the right to receive from the insurer or agent, the customary commissions upon insurance placed in the insurer by the broker.
56-839b. Agent-broker license combination. - A licensed agent may be licensed as a broker and be a broker as to insurers for which he is not then a licensed agent. A licensed broker.may be licensed as and be an agent as to insurers appointing him as agent. The sole relationship between a broker and an insurer as to which he is licensed as an agent shall, as to transactions arising during such agency appointment, be that of insurer and agent.
56-840b. Special limitations as to solicitors.- (1) A solicitor shall not be appointed or licensed as to more than one agent or broker.
(2) A solicitor's license shall not cover any kind of insurance for which the agent or broker is not then licensed.

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(3) A solicitor shall not have power to bind an insurer or to countersign policies.
(4) Any individual while licensed as a solicitor shall not be licensed as an agent or broker.
(5) The solicitor shall maintain his office with that of the appointing agent or broker, and record of his transactions under the license shall be maintained as a part of the records of such agent or broker.
(6) The solicitor's license shall remain in the custody of the agent or broker by whom appointed. Upon termination of the appointment the agent or broker shall give written notice thereof to the Commissioner and deliver the license to the Commissioner for cancellation.
(7) All business transacted by a solicitor under his license shall be in the name of the agent or broker by whom he is employed and the ag-ent or broker shall be responsible for all the acts or omissions of the solicitor within the scope of his employment.
56-841b. [Reserved].
56-842b. Adjusters; qualifications for license.-(1) In addition to the other applicable provisions of this Chapter, the Commissioner shall license as an adjuster only an individual who has furnished evidence satisfactory to the Commissioner that he has had experience or special education or training with reference to the handling of loss claims under insurance contracts, of sufficient duration and extent reasonably to make him competent to fulfill the responsibilities of an adjuster.
(2) If for a public adjuster's license, the applicant must have filed previously the required bond.
56-843b. Separate licenses for adjusters; authority.(1) The Commissioner may concurrently license an individual as an independent adjuster and as a public ad-

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juster, and separate licenses shall be required for each, and the full license fee shall be paid for each such license. An adjuster licensed as both an independent and a public adjuster shall not represent both the insurer and the insured in the same transaction.
(2) An adjuster shall have authority under his license only to investigate, settle or adjust and report to his principal upon claims arising under insurance contracts on behalf only of insurers if licensed as an independent adjuster or on behalf only of insureds if licensed as a public adjuster.
56-844b. Agent may adjust; nonresident adjusters.(1) On behalf of and as authorized by an insurer for which he is licensed as agent, an agent may from time to time act as an adjuster and investigate and report upon claims without being required to be licensed as an adjuster.
(2) No license by this State shall be required:
(a) Of a nonresident independent adjuster for the adjustment in this State of a single loss, or of losses arising out of a catastrophe common to all such losses; or
(b) Of a nonresident adjuster who regularly adjusts in another state and who is licensed in such other state (if such state requires a license), to act as adjuster in this State, for emergency insurance adjustment work, for a period of not exceeding sixty (60) days, done for an employer who is an insurance adjuster licensed by the State of Georgia or who is a regular employer of one or more insurance adjusters licensed by the State of Georgia; Provided, that the employer shall furnish to the Commissioner a notice in writing immediately upon the beginning of such "emergency" insurance adjustment work.
56-84Sb. Public adjuster's bond.-( 1) Prior to the issuance of a license as public adjuster, the applicant therefor shall file with the Commissioner and shall there-

155

AGENTS , SoLICITORS, ETc.

56-847b

after maintain in force while so licensed a surety bond in favor of the Commissioner executed by an authorized corporate surety approved by the Commissioner, in the amount of twenty-five hundred ($2,500) dollars. The bond may be continuous in form and may be limited to a total aggregate liability of twenty-five hundred ( $2-,500) dollars. The bond shall be contingent on the accounting by the adjuster to any insured whose claim he is handling, for monies or any settlement received in connection therewith.
(2) Any such bond shall remain in force until the surety is released from liability by the Commissioner, or until cancelled by the surety. Without prejudice to any liability accrued prior to cancellation, the surety may cancel a bond upon thirty (30) days' advance notice in writing filed with the Commissioner.
56-846b. Place of business.-Every licensed agent, broker and adjuster, shall have and maintain in this State, or if a nonresident agent or broker, in the state of his domicile, a place of business accessible to the public. Such place of business shall be that wherein he principally conducts transactions under his licenses. The address of his place of business shall appear on all licenses of the licensee and the licensee shall promptly notify the Commissioner of any change thereof.
56-847b. Records of agents, brokers and adjusters.(1) Every agent, broker or adjuster shall keep at his address as shown on his license or at the insurer's regional or home office situated in this State, a record of all transactions consummated under his license. The record shall be in organized form and shall include:
(a) If an agent or broker:
(i) A record of each insurance contract procured, issued, or countersigned, together with the names of the insurers and insureds, the amount of premium paid or to be paid, and a statement of the subject of the insurance; and

56-848b

AGENTS, SoLICIToRs, ETC.

156

(ii) The names of any other licensees from whom business is accepted, and of persons to whom commissions or allowances of any kind are promised or paid ;
(b) If an adjuster, a record of each investigation or adjustment undertaken or consummated, and a statement of any fee, commission, or other compensation received or to be received by the adjuster on account of such investigation or adjustment; and
(c) Such other and additional information as may be customary, or as may be reasonably required by the Commissioner.
(2) All such records as to any particular transaction shall be kept for a term of three years beginning immediately after the completion of the transaction, or the term of the contract, whichever is longer; Provided, that rec..: ords of losses adjusted by an independent adjuster may be kept at the office of the insurer for whom the adjuster acted.
(3) This section shall not apply to life and accident and sickness insurance.
56-848b. Reporting and Accounting for Premiums.(1) An agent, broker, solicitor, or any other representative of an insurer, or of any other person in the effectuation of an insurance contract shall report to the insurer or its agent the premium for such contract, and such amount shall likewise be shown in the contract. Each wilful violation of this provision shall constitute a misdemeanor.
(2) All funds representing premiums received or return premiums due the insured by any agent, broker or solicitor shall be accounted for in his fiduciary capacity and shall not be co-mingled with his personal funds, and shall be promptly accounted for and paid to the insurer,

157

AssETS AND LIABILITIES

56-901

insured or agent as entitled thereto. Nothing herein contained shall be deemed to require any such agent, broker or solicitor to maintain a separate bank deposit for the funds of each such principal, if and as long as the funds so held for each such principal are reasonably ascertainable from the books of accounts and records of such agent, broker or solicitor.
(3) Any agent, broker or solicitor who, not being lawfully entitled thereto, diverts or appropriates such funds or any portion thereof to his own use, shall be guilty of larceny after trust and shall be punished as provided in the criminal code of this State,
CHAPTER 56-9
ASSETS AND LIABILITIES
56-901. "Assets" defined. 56-902. Assets as deductions from liabilities. 56-903. Assets not allowed. 56-904. Reporting assets not allowed. 56-905. Liabilities. 56-906. Unearned premium reserve. 56-907. Unearned premium reserve for marine insurance. 56-908. Reserves for accident and sickness insurance. 56-909. Loss reserves, liability insurance and workmen's
compensation. 56-910. Increase of inadequate reserves. 56-911. Title insurance reserves. 56-912. Standard Valuation Law; life insurance. 56-913. Valuation of bonds. 56-914. Valuation of other securities. 56-915. Valuation of property. 56-916. Valuation of purchase money mortgages.
56-901. "Assets" defined.-In any determination of the financial condition of an insurer, there shall be allowed as assets only such assets as are owned by the insurer and which consist of:

56-90 1

AssETS AND LIABILITIES

158

(1) Cash in the possession of the insurer, or in transit under its control, and including the true balance of any deposit in a solvent bank or trust company;
(2) Investments, securities, properties and loans acquired or held in accordance with this Title, and in connection therewith the following items:
(a) Interest due or accrued on any bond or evidence of indebtedness which is not in default and which is not valued on a basis including accrued interest,
(b) Declared and unpaid dividends on stock and shares, unless such amount has otherwise been allowed as an asset,
(c) Interest due or accrued upon a collateral loan in an amount not to exceed one year's interest thereon,
(d) Interest due or accrued on deposits in solvent banks and trust companies, and interest due or accrued on other assets, if such interest is in the judgment of the Commissioner a collectible asset,
(e) Interest due or accrued on a mortgage loan, in an amount not exceeding in any event the amount, if any, of the excess of the value of the property less delinquent taxes thereon over the unpaid principal; but in no event shall interest accrued for a period in excess of eighteen (18) months be allowed as an asset,
(f) Rent due or accrued on real property if such rent is not in arrears for more than three months, and rent more than three months in arrears if the payment of such rent be adequately secured by property held in the name of the tenant and conveyed to the insurer as collateral.
(g) The unaccrued portion of taxes paid prior to the due date on real property;
(3) Electronic and mechanical machines constituting a data processing and accounting system if the cost of

159

AssETS AND LIABILITIES

56-901

such system is at least twenty-five thousand ($25,000) dollars, which cost shall be amortized in full over a period not to exceed ten (10) calendar years;
(4) Premium notes, policy loans, and other policy assets and liens on policies and certificates of life insurance and annuity contracts and accrued interest thereon, in an amount not exceeding the legal reserve and other policy liabilities carried on each individual policy;
(5) The net amount of uncollected and deferred premiums and annuity considerations in the case of a life insurer;
(6) Premiums in the course of collection, other than for life insurance and annuity considerations, not more than three months past due, less commissions payable thereon. The foregoing limitation shall not apply to premiums payable directly or indirectly by the United States Government or by any state of the Union or by any of their instrumentalities;
(7) Installment premiums other than life insurance premiums to the extent of the unearned premium reserves carried thereon;
(8) Notes and like written obligations not past due, taken for premiums other than life insurance premiums, on policies permitted to be issued on such basis, to the extent of the unearned premium reserves carried thereon;
(9) The full amount of reinsurance recoverable by a ceding insurer from a solvent reinsurer and which reinsurance is authorized under section 56-413;
(10) Amounts receivable by an assuming insurer representing funds withheld by a solvent ceding insurer under a reinsurance treaty;
(11) Deposits or equities recoverable from underwriting associations, syndicates and reinsurance funds, or from any suspended banking institution, to be the extent

56-902

AssETS AND LIABILITIES

160

deemed by the Commissioner available for the payment of losses and claims and at values to be determined by him;
(12) All assets, whether or not consistent with the provisions of this section, as may be allowed pursuant to the annual statement form approved by the Commissioner for the kinds of insurance to be reported upon therein; and
(13) Other assets, not inconsistent with the provisions of this section, deemed by the Commissioner to be available for the payment of losses and claims, at values to be determined by the Commissioner.
56-902. Assets as deductions from liabilities.-Assets may be allowable as deductions from corresponding liabilities, and liabilities may be charged as deductions from assets, and deductions from assets may be cJl_arged as liabilities, in accordance with the form of annual state:.. ment applicable to such insurer as prescribed by the Commissioner, or otherwise in his discretion.
56-903. Assets not allowed.-In addition to assets impliedly excluded by the provisions of section 56-901, the following expressly shall not be allowed as assets in any determination of the financial condition of an insurer:
(1) Good will, trade names and other like intangible assets;
(2) Advances to officers (other than policy loans) whether secured or not, and advances (other than policy loans) to employees, agents and other persons on personal security oniy;
(3) Stock of such insurer, owned by it, or any equity therein or loans secured thereby, or any proportionate interest in such stock acquired or held through the ownership by such insure:r: of a controlling interest in another firm, corporation or business unit;

16l

AssET S AND LIABILITIES

56-905

(4) Furniture, fixtures, furnishings, safes, vehicles, libraries, stationery, literature and supplies (other than data processing and accounting system authorized under section 56-901 (3) ), except in the case of title insurers such materials and plants as the insurer is expressly authorized to invest in under section 56-1026 and except, in the case of any insurer, such personal property as the insurer is permitted to hold pursuant to Chapter 56-10, or which is reasonably necessary for the maintenance and operation of real estate lawfully acquired and held by the insurer other than real estate used by it for home office, branch office and similar purposes; and
(5) The amount, if any, by which the aggregate book value of investments as carried in the ledger assets of the insurer exceeds the aggregate value thereof as determined under this Chapter.
56-904. Reporting assets not allowed.-All assets not allowed and all other assets of doubtful value or character included as assets in any statement by an insurer to the Commissioner, or in any examiner's report to said Commissioner, shall also be reported, to the extent of the value disallowed, as deductions from the gross assets of such insurer.
56-905. Liabilities.-In any determination of the financial condition of an insurer, capital stock and liabilities to be charged against its assets shall include:
(l) The amount of its capital stock outstanding, if any;
(2) The amount, estimated consistent with the provisions of this Title, necessary to pay all of its unpaid losses and claims incurred on or prior to the date of statement, whether reported or unreported, together with the expenses of adjustment or settlement thereof;
(3) With reference to life and disability insurance and annuity contracts:

56-906

..:\S S ETS AND LIABILITIES

162

(a) The amount of reserves on life insurance policies and annuity contracts in force, valued according to the tables of mortality, rates of interest, and methods adopted pursuant to this Title which are applicable thereto,
(b) Reserves for disability benefits, for both active and disabled lives,
(c) Reserves for accidental death benefits, and
(d) Any additional reserves which may be required by the Commissioner consistent with practice formulated or approved by him, on account of such insurance;
(4) With reference to insurance other than specified in subsection (3) of this section, and other than title insurance, the amount of reserves equal_ to the unearned portions of the gross premiums charged on policies in force, computed in accordance with this Chapter; and
(5) Taxes, expenses and other _obligations due or accrued at the date of the statement.
56-906. Unearned premium reserve.-(1) With reference to insurance against loss or damage to property (except as provided in section 56-907) and with reference to all general casualty insurance and surety insurance, every insurer shall maintain an unearned premium reserve on all policies in force.
(2) The Commissioner may require that such reserves shall be equal to the unearned portions of the gross premiums in force after deducting reinsurance in solvent insurers as computed on each respective risk from the policy's date of issue. If the Commissioner does not so require, the portions of the gross premium in force, less reinsurance in solvent insurers to be held as a premium reserve, shall be computed according to the following table:

163

AssETS AND LIABILITIES

56-907

Term for Which Policy Was Written 1 year or less 2 years 3 years
4 years
5 years
Over 5 years

Reserve for Unearned Premium
1/ 2
1st year 3/ 4 2nd year 1/ 4
1st year 5/ 6 2nd year 1/ 2 3rd year 1/ 6
1st year 7/ 8 2nd year 5/ 8 3rd year 3/ 8 4th year 1/ 8
1st year 9/ 10 2nd year 7/ 10 3rd year 1/ 2 4th year 3/ 10 5th year 1/ 10
pro rata.

(3) Unearned premium reserves on policies written for an intermediate period shall be calculated on a monthly pro rata basis.
(4) In lieu of computation according to the foregoing table, all of such reserves may be computed, at the option of the insurer, on a monthly or more frequent pro rata basis.
(5) After adopting a method for computing such reserve, a domestic insurer shall not change methods without approval of the Commissioner and a foreign or alien insurer shall not change methods without approval of the insurance supervisory official of the state of its domicile.
(6) This section does not apply to title insurance.
56-907. Unearned premium reserve for marine insurance.-With reference to marine insurance, premiums on

56-908

AssETs AND LIABILITIES

164

trip risks not terminated shall be deemed unearned, and the Commissioner may require the insurer to carry a reserve thereon equal to one hundred (100%) percent on trip risks written during the month ended as of the date of statement.
56-908. Reserves for accident and sickness insurance. -For all accident and sickness policies the insurer shall maintain an active life reserve which shall place a sound value on its liabilities under such policies and which shall not be less in the aggregate than the reserve according to the standards set forth in regulations issued by the Commissioner and, in no event, less than the pro rata gross unearned premium reserve for such policies.
56-909. Loss reserves, liability insurance and workmen's compensation.-The reserve for outstanding losses under insurance against loss or damage from accident to or injuries suffered by an employee or other person and for which the insured is liable, shall be computed as follows:
(1) For all liability insurance suits being defended under policies written more than:
(a) Ten (10) years prior to the date as of which the statement is made, fifteen hundred ($1,500) dollars for each suit,
(b) Five or more and less than ten (10) years prior to the date as of which the statement is made, one thousand ($1,000) dollars for each suit,
(c) Three or more and less than five years prior to the date as of which the statement is made, eight hundred fifty ($850) dollars for each suit;
(2) For all liability policies written during the three years immediately preceding the date as of which the statement is made, the reserve shall be sixty (60%) percent of the earned liability premiums of each of such

]65

AssETS AND LIABILITIES

56-911

three years less all losses and expense payments made under liability policies written in the corresponding years; but in any event, such reserve shall for the first of such three years be not less than seven hundred fifty ($750) dollars for each outstanding liability suit on such year's policies;
(3) For all workmen's compensation claims under policies written more than three years prior to the date as of which the statement is made, the reserve shall be the present value at four (4%) percent interest of the determined and the estimated future payments;
(4) For all workmen's compensation claims under policies written in the three years immediately preceding the date as of which the statement is made, such reserve shall be sixty-five (65%) percent of the earned compensation premiums of each of such three years, less all loss and loss expense payments made in connection with such claims under policies written in the corresponding years. But in any event in the case of the first year of any such three year period, such reserve shall be not less than the present value at four (4%) percent interest of the determined and the estimated unpaid compensation claims under policies written during such year.
56-910. Increase of inadequate reserves.-If the loss experience shows that an insurer's loss reserves, however estimated, are inadequate, the Commissioner shall require the insurer to maintain loss reserves in such increased amounts as are needed to make them adequate. This section does not apply to life insurance.
56-911. Title insurance reserves.-In addition to an adequate reserve as to outstanding losses as required under section 56-905, a title insurer shall maintain a guaranty fund or unearned premium reserve of not less than an amount computed as follows:
*) (1) Ten (1 0 per cent of the total amount of the
risk premiums hereafter written in the calendar year for

56-912

AssETS AND LIABILITIES

166

title insurance contracts shall be assigned originally to the reserve.
(2) During each of the twenty (20) years next following the year in which the title insurance contract was issued, the reserve applicable to the contract may be reduced by five (5%) percent of the original amount of such reserve.
56-912. Standard Valuation Law; life insurance.-(!) This section shall be known as the Standard Valuation Law.
(2) Annual Valuation. The Commissioner shall annually value, or cause the insurer to value, the reserve liabilities (hereinafter called reserves) for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurer doing business in this State, and may certify the amount of any such reserves, specifying the mortality table .or tables, rate or rates of interest and methods (net level premium method or others) used in the calculation of such reserves. In the case of an alien insurer, such valuation shall be limited to its insurance transactions in the United States. In cal-/ culating such reserves, the Commissioner may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves herein required of any foreign or alien insurer, he may accept any valuation made or caused to be made by the insurance supervisory official of any state or other jurisdiction when such valuation complies with the minimum standard herein provided, and if the official of such state or jurisdiction accepts as sufficient and valid for all legal purposes the certificate of valuation of the Commissioner when such certificate states the valuation to have been made in a specified manner according to which the aggregate reserves would be at least as large as if they had been computed in the manner prescribed by the law of that state or jurisdiction.
(3) The minimum standard for the valuation of all

167 "

AssETS AND LIABILITIES

56-912

such policies and contracts issued prior to the operative date of section 56-2504 shall be as required under laws in effect immediately prior to the effective date of this Act, or the minimum provided in subsection (4) if less.
(4) The minimum standard for the valuation of all life insurance policies and annuity or pure endowment contracts issued on or after the operative date of section 56-2504 shall be the Commissioner's Reserve Valuation Method defined in subsection (5) of this section, threeand-one-half (3%%) percent interest and the following tables:
(a) For all ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in such policies, the Commissioners' 1958 Standard Ordinary Mortality Table; except, that for any category of such policies issued on female risks modified net premiums and present values, referred to in subsection (5), may be calculated, at the insurer's option and with the Commissioner's approval, according to an age not more than three years younger than the actual age of the insured;
(b) For all industrial life insurance policies issued on the standard basis, excluding any disability and accidental death benefits in such policies, the 1941 Standard Industrial Mortality Table: Provided, however, that the Commissioners' 1961 Standard Industrial Mortality Table shall be the table for the minimum standard when said table becomes applicable in accordance with subsection (4) of section 56-2504, as amended.
(c) For individual annuity and pure endowent contracts, excluding any disability and accidental death benefits in such policies, the 1937 Standard Annuity Mortality Table or, at the option of the insurer, the Annuity Mortality Table for 1949, Ultimate, or any modification of either of these tables approved by the Commissioner.
(d) For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in such policies, the Group Annuity Mortality Table for

56-912

AssETs AND LIABILITIEs

168

1951, any modification of such table approved by the Commissioner, or, at the option of the insurer, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts.
(e) For total and permanent disability benefits in or supplementary to ordinary policies or contracts, for policies or contracts issued on or after January 1, 1966, the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries, with due regard to the type of benefit; for policies or contracts issued prior to January 1, 1966, either such tables or, at the option of the insurer, the Class (3) Disability Table (1926). Any such table shall, for active lives, be combined with a mortality table permitted for calculating the reserves for life insurance policies.
(f) For accidental death benefits in or supplementary to policies, for policies issued on or after January 1, 1966, the 1959 Accidental Death Benefits Table; for policies issued prior to January 1, 1966, either such table or, at the option of the insurer, the Inter-Company Double Indemnity Mortality Table. Either table shall be combined with a mortality table permitted for calculating the reserves for life insurance policies.
(g) For group life insurance, life insurance issued on the substandard basis and other special benefits, such tables as may be approved by the Commissioner as being sufficient with relation to the benefits provided by such policies.
(5) Commissioners' Reserve Valuation Method.
(a) Reserves according to the Commissioners' Reserve Valuation Method, for the life insurance and endowment benefits of policies providing for a uniform amount of insurance and requiring the payment of uniform premiums, shall be the excess, if any, of the present value, at the date of valuation, of such future guaranteed benefits provided for by such policies, over the then present value of any future modified net premiums therefor. The modified net premiums for any such policy shall

169

AssETS AND LIABILITIES

56-912

be such uniform percentage of the respective contract premiums for such benefits (excluding extra premiums on a substandard policy) that the present value at the date of issue of the policy, of all such modified net premiums shall be equal to the sum of the then present yalue of such benefits provided for by the policy and the excess of (i) over (ii) as follows:
(i) A net level annual premium equal to the present value, at the date of issue, of such benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of such policy on which a premium falls due: Provided, however, that such net level annual premium shall not exceed the net level annual premium on the nineteen (19) year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of such policy;
(ii) At net one year ~erm premium for such benefits provided for in the first policy year.
(b) Reserves according to the Commissioners' Reserve Valuation Method for (i) life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums, (ii) annuity and pure endowment contracts, (iii) disability and accidental death benefits in all policies and contracts, and (iv) all other benefits, except life insurance and endowment benefits in life insurance policies, shall be calculated by a method consistent with the principles of this section.
(6) Minimum aggregate Reserves. In no event shall an insurer's aggregate reserve for all life insurance policies, excluding disability and accidental death benefits, issued on or after the operative date of section 56-2504, be less than the aggregate reserves calculated in accordance with the method set forth in subsection (5) of this section and mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for such policies.

56-912

AssETS AND LIABILITIES

170

(7) Optional Reserve Basis.
(a) Reserves for all policies and contracts issued prior to the operative date of section 56-2504 may be calculated, at the option of the insurer, according to any standards which produce greater aggregate reserves for all such policies and contracts than the minimum reserves required by the laws in effect immediately prior to such date;
(b) For any category of policies, contracts or benefits specified in subsection (4) of this section, issued on or after the operative date of section 56-2504, reserves may be calculated, at the option of the insurer, according to any standard or standards which produce greater aggregate reserves for such category than those calculated according to the minimum standard herein provided, but the rate or rates of interest used shall not be higher than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided for therein; Provided, however, that reserves for participating life insurance policies issued on or after the operative date of section 56-2504 may, with the consent of the Commissioner, be calculated according to a rate of interest lower than the rate of interest used in calculating the nonforfeiture benefits in such policies, with the further proviso that if such lower rate differs from the rate used in the calculation of the nonforfeiture benefits by more than one-half of one (.5%) percent, the insurer issuing such policies shall file with the Commissioner a plan providing for such equitable increases, if any, in the cash surrender values and nonforfeiture benefits in such policies as the Commissioner shall approve.
(8) Lower Valuations. An insurer which at any time had adopted any standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard herein provided may, with the approval of the Commissioner, adopt any lower standard of valuation, but not lower than the minimum herein provided.

171

AssETS AND LIABILITIES

56-913

(9) Deficiency Reserves. If the gross premium charged by any life insurer on any policy or contract issued on or after the operative date of section 56-2504 is less than the net premium for the policy or contract according to the mortality table, rate of interest and method used in calculating the reserve thereon, there shall be maintained on such policy or contract a deficiency reserve in addition to all other reserves required by law. For each such policy or contract the deficiency reserve shall be the present value, according to such standard, of an annuity of the difference between such net premium and the premium charged for such policy or contract, running for the remainder of the premium-paying period.
56-913. Valuation of bonds.-(1) All bonds or other evidence of debt having a fixed term and rate of interest held by an insurer may, if amply secured and not in default as to principal or interest, be valued as follows:
(a) If purchased at par, at the par value;
(b) If purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield in the mE!antime the effective rate of interest at which the purchase was made, or in lieu of such method, according to such accepted methods of valuation as is approved by the Commissioner;
(c) Purchase price shall in no case be taken at a higher figure than the actual market value at the time of purchase, plus actual brokerage, transfer, postage or ex press charges paid in the acquisition of such securities;
(d) Unless otherwise provided by valuation established or approved by the Commissioner, no such security shall be carried at above the call price for the entire issue during any period within which the security may be so called.
(2) The Commissioner shall have discretion in determining the method of calculating values according to the rules set forth in this section.

56-914

AssETS AND LIABILITIES

172

56-914. Valuation of other securities.- (1) Securities, other than those referred to in section 56-913, held by an insurer shall be valued, in the discretion of the Commissioner, at their market value, or at their appraised value, or at prices determined by him as representing their fair market value.
(2) Preferred or guaranteed stocks or shares while paying full dividends may be carried at a fixed value in lieu of market value, at the discretion of the Commissioner and in accordance with such method of valuation as he may approve.
56-915. Valuation of property.-(1) Real property acquired under a mortgage loan or under a deed to secure debt or pursuant to a contract of sale, in the absence of a recent appraisal deemed by the Commissioner to be reliable, shall not be valued at an amount greater than the unpaid principal of the defaulted loan or contract at the date of such acquisition, together with any taxes and expenses paid or incurred in connection with such acquisition, and the cost of improvements thereafter made by the insurer and any amounts thereafter paid by the insurer on assessments levied for improvements in connection with the property.
(2) Other real property held by an insurer shall not be valued at an amount in excess of fair value as determined by recent appraisal. If valuation is based on an appraisal more than three years old, the Commissioner may at his discretion call for and require a new appraisal in order to determine fair value.
(3) Personal property acquired under a chattel mortgage made in accordance with section 56-1025 shall not be valued at an amount greater than the unpaid balance of principal on the defaulted loan at the date of acquisition, together with taxes and expenses incurred in connection with such acquisition, or the fair value of such property, whichever amount is the lesser.

INVESTMENTS

56-916

56-916. Valuation of purchase money mortgages.Purchase money mortgages on real property referred to in subsection (1) of section 56-915 shall be valued in an amount not exceeding the acquisition cost of the real property covered thereby or ninety (90%) percent of the fair value of such real property, whichever is less.

CHAPTER 56-10
INVESTMENTS
56-1001. Scope of Chapter. 56-1002. Eligible investments. 56-1003. General qualifications. 56-1004. Authorization of investment. 56-1005. Diversification of investments. 56-1006. Cash, deposits in banks, savings and loan. 56-1007. Investment trust securities. 56-1008. International bank. 56-1009. United States Government obligations. 56-1010. Loans guaranteed by the United States. 56-1011. State and Canadian public obligations. 56-1012. County, municipal and district obligations. 56-1013. Revenue and public utility obligations. 56-1014. Securities of certain Federal agencies. 56-1015. Public housing obligations. 56-1016. Corporate bonds and debentures. 56-1017. Equipment trust certificates. 56-1018. Policy loans. 56-1019. Collateral loans. 56-1020. Corporate stocks. 56-1021. Foreign securities. 56-1022. Mortgage loans. 56-102 3. Investments incidental to agricultural property
loans. 56-1024. Authority to sell and buy property or securi-
ties in which money has been invested. 56-102 5. Chattel mortgages. 56-1026. Special investments by title insurer. 56-1027. Special consent investments.

56-1001

INVESTMENTS

' 174

56-1028. Real estate, in general.

56-1029. Investments in real estate for leasing.

56-1030. Real estate for employee facilities.

56-1031. Real estate; limits of investment.

56-1032. Time limit for disposal of real estate.

56-1033. Time limit for disposal of other ineligible prop-

erty and securities.

56-1034. Failure to dispose of real estate property, or

securities; effect, penalty.

56-1035. Prohibited investments and investment under-

writing.

56-1036. Investments of foreign and alien insurers.

56-1037. Investment in securities of Inter-American De-

velopment Bank.

/

56-1038. Separate accounts for pension, retirement, and

profit-sharing plans; investment of funds.

56-1039. Loans guaranteed by the G~orgia Higher Edu-

cation Assistance Corporation.

56-1040. Variable Annuity Contracts.

56-1001. Scope of Chapter.-With the exception of section 56-1036, this Chapter shall apply to domestic insurers only.

56-1002. Eligible investments.-(!) Insurers shall invest in or lend their funds on the security of, and shall hold as invested assets, only eligible investments as prescribed in this Chapter.
(2) Any particular investment held by an insurer on the effective date of this Act, and which was a legal investment at the time it was made, and which the insurer was legally entitled to possess immediately prior to such effective date, shall be deemed to be an eligible investment.

(3) Eligibility of an investment shall be determined as of the date of its making or acquisition, except as stated in subsection (2) above.
(4) Any investment limitation based upon the amount of the insurer's assets or particular fund shall relate

175

INVESTMENTS

56-1004 .

to such assets or funds as shown by the insurer's annual statement as of the December 31st next preceding date of acquisition of the investment by the insurer, or as shown by a current financial statement resulting from merger of another insurer, bulk reinsurance, or change in capitalization.
56-1003. General qualifications.-(1) No security or investment (other than real and personal property acquired under sections 56-1023, 56-1028, 56-1031 and cash and deposits under section 56-1006) shall be eligible for acquisition unless it is interest bearing or interest accruing or dividend or income paying, is not then in default in any respect, and the insurer is entitled to receive for its account and benefit the interest or income accruing thereon.
(2) No security or investment shall be eligible for purchase at a price above its market value.
(3) No provision of this Chapter shall prohibit the acquisition by an insurer of other or additional securities or property if received as a dividend or as a lawful distribution of assets, or under a lawful and bona fide agreement of bulk reinsurance, merger, or consolidation. Any investment so acquired which is not otherwise eligible under this Chapter shall be disposed of pursuant to section 56-1032 if real property, or pursuant to section 56-1033 if personal property or securities.
(4) Nothing in this section shall prohibit an insurer from acquiring control of another insurer subject to the approval of the Commissioner.
56-1004. Authorization of investment.-An insurer shall not make any investment or loan (other than policy loans or annuity contract loans of a life insurer) unless the same is authorized or approved by the insurer's board of directors or by a committee authorized by such board and charged with the supervision or making of such investment or loan. The minutes of any such com-

56-1005

INVESTMENTS

176

mittee shall be recorded and regular reports of such committee shall be submitted to the board of directors.
56-1005. Diversification of investments.-An insurer shall invest in or hold as admitted assets categories of investments within applicable limits as follows only:
(1) One person. Any insurer shall not, except with the Commissioner's consent, have at any one time any combinations of investments in or loans upon the security of the obligations, property, or securities of any one person, institution, corporation, or municipal corporation, aggregating an amount in excess of ten (10 % ) percent of the insurer's admitted assets. This restriction shall not apply as to general obligations of the United States of America or of the Government of Canada or of any state, or include policy loans under this Chapter.
(2) Voting stock. An insurer shall not invest in or hold at any one time more than ten (10 ){; ) percent of the outstanding voting stock of any corporation, except with the Commissioner's consent. This provision does not apply as to stock of a substantially wholly-owned insurance subsidiary of the insurer, but the prior written consent of the Commissioner shall be required for investment in a subsidiary.
(3) Minimum capital. An insurer shall invest and maintain invested funds not less in amount than the minimum paid-in capital stock required under this Title of a domestic stock insurer transacting like kinds of insurance, only in the following:
(a) Cash. (b) Certificates of deposit or similar certificates or evidences of deposit in banks and trust companies to the extent that such certificates or deposits are insured by Federal Deposit Insurance Corporation. (c) Shares or savings accounts in savings and loan associations and building and loan associations to the extent that same are insured by Federal Savings and Loan Insurance Corporation.

177

INVESTMENTS

56-1006

(d) The securities provided for under section 56-1009 of this Chapter.
(e) The securities provided for under section 56-1010 of this Chapter.
(f) The securities provided for under section 56-1011 of this Chapter.
(g) The securities provided for under section 56-1012 of this Chapter.
(h) The securities provided for under section 56-1022 of this Chapter.
(4) Investment of reserves. In addition to the investments in subsection (3), an insurer shall invest and keep invested its funds in amount not less than one hundred (100%) percent of the reserves provided for by this Title, in cash or the securities or investments authorized under this Chapter; Provided, however, that an amount equal to not less than seventy-five (75) percent of such reserves shall be invested in securities other than common stocks.
(5) Other specific limits. Limits as to investments in the category of real estate shall be as provided in sections 56-1028 through 56-1031; and other specific limits shall apply as stated in sections dealing with other respective kinds of investments.
56-1006. Cash, deposits in banks, savings and loan. - ( 1) An insurer may have as assets cash or deposits in checking or savings accounts, under certificates of deposit or in any other form in banks and trust companies which have qualified for the insurance protection afforded by the Federal Deposit Insurance Corporation. Provided, however, that an insurer may upon approval of the Commissioner, have as assets, cash or deposits in checking or savings accounts, or in any other form in banks, trust companies, or savings and loan associations which are not members of the Federal Deposit Insurance Corporation or Federal Savings and Loan Insurance Corporation.

56-1007 '

INVESTMENTS

178

(2) To the extent that such an investment or account is insured by the Federal Savings and Loan Insurance Corporation, an insurer may invest in shares of savings and loan associations or building and loan associations without approval of the Commissioner.
56-1007. Investment trust securities.-An insurer may invest in the securities of any open end management type investment company or investment trust registered with the Federal Securities and Exchange Commission under the Investment Company Act of 1940, as from time to time amended, if such investment company or trust has been organized for not less than ten (10) years or has assets of not less than twenty-five million ($25,000,000) dollars at the date of investment by the insurer.
56-1008. International bank.-An insurer may invest in obligations issued, assumed or guaranteed by the International Bank for Reconstruction and Development. The investments authorized by this section shall not be counted as an investment of reserves under section 56-1005(4) at any one time in an amount greater than five (5%) percent of the insurer's admitted assets.
56-1009. United States Government obligations.-An insurer may invest in bonds, notes, warrants and other evidences of indebtedness which are direct obligations of the Government of the United States of America or for which the full faith and credit of the Government of the United States of America is pledged for the payment of principal and interest.
56-1010. Loans guaranteed by the United States.An insurer may invest in loans guaranteed as to principal and interest by the Government of the United States of America, or by any agency or instrumentality of the Government of the United States of America, to the extent of such guaranty.

179

INVESTMENTS

56-1013

56-1011. State and Canadian public obligations.-An insurer may invest in bonds, notes, warrants and other securities not in default which are the direct obligations of any state of the United States or of the District of Columbia, or of the Government of Canada or any province thereof, or for which the full faith and credit of such state, district, government or province has been pledged for the payment of principal and interest.
56-1012. County, municipal and district obligations. -An insurer may invest in the obligations of any county, any incorporated city, town, or village, any school district, water district, sewer district, road district, or any special district, or any other political subdivision or public authority of any state, territory, or insular possession of the United States, or the District of Columbia, or of the Canadian cities having a population of over 25,000 according to the most recent official census, which has not defaulted for a period of one hundred and twenty (120) days in the payment of interest upon, or for a period of more than one year in the payment of principal of, any of its bonds, notes, warrants, certificates of indebtedness, securities, or any other interestbearing obligation during the five years immediately preceding the acquisition of the investment. .
56-1013. Revenue and public utility obligations.-An insurer may invest in the bonds, notes, certificates of indebtedness, warrants or other evidence of indebtedness which are valid obligations issued, assumed or guaranteed by the United States of America or any state thereof, or by any county, municipal corporation, district, or political subdivision, or civil division of public instrumentality of any such government or unit thereof, if by statute or other legal requirements such obligations are payable as to both principal and interest from revenues or earnings from the whole or any part of any utility supplying water, gas, sewage disposal facility or electricity or any other public service, including but not limited to toll roads and toll bridges, and in revenue bonds issued by any political subdivision, authority, unit, or other

56-1014

INVESTMENTS

180

corporate body created by the United States Government or the government of any State, for the purpose of aiding in or promoting the industrial development of such State or political subdivisions.
56-1014. Securities of certain Federal agencies.-An insurer may invest in bonds, debentures, or other securities issued or insured or guaranteed by any agency, authority, unit or corporate body created by the Government of the United States of America whether or not such obligations are guaranteed by the United States.
56-1015. Public housing obligations.-An insurer may invest in the bonds, debentures or other securities of public housing authorities, issued under th~ provisions of the Act of Congress entitled the "Housing Act of 1949" and approved July, 1949; the Municipal Housing Commission Act or the "Rural Housing Commission Act," and any additional amendments, or issued by any other public housing authority or agency in the United States, if such bonds, debentures, or other securities are secured by a pledge of annual contributions to be paid by the United States or any agency thereof.
56-1016. Corporate Bonds and Debentures.-(1) An insurer may invest in bonds, debentures, notes and other evidences of indebtedness issued, assumed or guaranteed by any solvent institution existing under the laws of the United States of America or of Canada, or any state or province thereof, which are not in default as to principal or interest and which are secured by collateral worth at least fifty (50%) percent more than the par value of the entire issue of such obligations, but only if not more than one-third of the total value of such required collateral consists of common stocks.
(2) An insurer may invest in secured and unsecured obligations of such institutions (other than obligations described in subsection (1)) bearing interest at a fixed rate, with mandatory principal and interest due at specified times, if the net earnings of the issuing, assuming or

JSl

INVESTMENTS

56-1020

guaranteeing institution available for its fixed charges for a period of five fiscal years next preceding date of acquisition by such insurer have averaged per year not less than one-and-one-half ( llf2) times its average annual fixed charges applicable to such period and if during either of the last two years of such period such net earnings have been not less than one-and-one-half ( llf2) times its fixed charges for such year.
56-1017. Equipment trust certificates.-An insurer may invest in equipment trust obligations or certificates adequately secured and evidencing an interest in transportation equipment, wholly or in part within the United States of America, and the right to receive determined portions of rental, purchase, or other fixed obligatory payments for the use or purchase of such transportation equipment.
!
56-1018. Policy loans.-A life insurer may lend to its policyholder on the policy as collateral security, any sum not exceeding the reserve on the policy, and such loans shall be eligible investments of the insurer.
56-1019. Collateral loans.-An insurer may invest in loans which are secured by pledge of securities eligible for investment under this Chapter, or by the pledge or assignment of life insurance policies issued by other insurers authorized to transact insurance in this State. On th e date mad e, no such loan shall excee d in amount seventy-five (75 % ) percent of the market value of the collateral pledged. The amount so loaned shall be included in the maximum percentage of funds permitted under this Chapter to be invested in the kinds of securities or evidences of debt pledged.
56-1020. Corporate stocks-An insurer may invest in nonassessable dividend-paying stocks, common or preferred, of any solvent corporation (other than a corporation engaged solely in the business of operating real estate or a corporation having substantially all of its assets invested in the shares of such corporation) created

56 1021

INVESTMENTS

182

or existing under the laws of the United States of America or of any state of the Union or of the District of Columbia; Provided cash dividends on such common stocks shall have been paid out of current earnings in at least three of the last five years preceding the purchase.
56-1021. Foreign securities.-An insurer authorized to transact insurance in a foreign country may make investments, in aggregate amount not exceeding its deposit and reserve obligations incurred in such country, in securities of or in such country possessing characteristics and of a quality similar to like investments required pursuant to this Chapter for investments in the United States of America. Canadian securities eligible for investment under other provisions of this Chapter are not subject to this section.
56-1022. Mortgage loans.-An insurer may invest in: (1) Bonds, notes or other evidences of indebtedness, in addition to those eligible under section 56-1016 (corporate bonds and debentures) which are secured by first mortgage or deed of trust or deed to secure debt upon fee simple, unencumbered improved or incomeproducing real property located in the United States or Canada, included leasehold estates in such real estate. No such loan or loans when made shall exceed seventyfive (75 % ) percent of the value of the real property or leasehold securing the same, as determined by competent appraisers, unless guaranteed or insured by the Administrator of Veterans Affairs or insured by the Federal Housing Commissioner as provided in subsections (3) and (4) below. Unless the loan is guaranteed or insured by a governmental agency, as above provided, the appraisal must be certified to by two or more company officers, or qualified employees (or by two independent appraisers).
(a) No such loan made or acquired by an insurer which is a participation or a part of a series or issue secured by the same mortgage or deed to secure debt or deed of trust shall be a lawful iri'vestment under this section unless the

18 3

INVESTMENTS

56-1022 <

entire series or issue which is secured by the same mortgage or deed to secure a debt or deed of trust is held by such insurer, or unless the participation held by the insurer in such mortgage or deed to secure a debt or deed of trust gives the insurer substantially the rights of a first mortgagee and no other participant in such mQrtgage or deed to secure a debt or deed of trust holds a senior participation therein.
(b) All loans secured by leasehold must provide for amortization payments on principal at least once in each year in amounts sufficient to completely amortize the loan within a period of four-fifths of the term of the leasehold, inclusive of the term which may be provided by an enforceable option of renewal, but in no event exceeding 35 years.
(c) For the purposes of this section, real estate shall not be deemed to be encumbered by reason of the existence of taxes or assessments that are not delinquent, instruments creating or reserving mineral, oil or timber rights, rights of way, joint driveways, sewer rights, public utility easements, rights in walls, nor by reason of !:?~ildin_g_ restrictions or other restrictive covenants, nor when such real estate is subject to lease in whole or in part whereby rents or profits are reserved to the owner; Provided, that the security created by the mortgage or trust or security deed on the real estate is a first lien upon such real estate and that there is no condition or right of re-entry or forfeiture under which such lien can be cut off, subordinated or otherwise disturbed.
(2) Purchase money mortgages or like securities received upon the sale or exchange of real property acquired.
(3) Bonds, notes, or other evidences of indebtedness which are secured by mortgage or deed of trust or deed to secure debt on real estate or an interest in real estate in the United States, if payment of such indebtedness or part thereof is guaranteed or insured by the Administrator of Veterans' Affairs in accordance with the Servicemen's Readjustment Act of 1944, as amended.

56-1023

I NVESTMENTS

184

(4) (a) Bonds, notes or other evidences of indebtedness which are secured by mortgage or deed of trust or deed to secure debt insured in whole or in part by the Federal Housing Commissioner under the terms of the "National Housing Act", as amended, or any other such loan guaranteed by the Federal Government or its instrumentalities.
(b) Any portion of a loan referred to in subsections (3) or (4) (a) above, which is not either insured by the Federal Housing Commissioner or guaranteed under the Servicemen's Readjustment Act, as amended, is subject to the same provisions as apply under this Chapter to uninsured mortgage loans.
(c) Nothing in this section shall be deemed to prohibit an insurer from renewing or extending a loan for the original or a lesser amount where a shrinkage in value of the real estate securing the loan would cause its value to be less than the amount otherwise required in relation to the amount of the loan.
56-1023. Investment incidental to agricultural property loans.-(1) If real property securing any evidence of indebtedness held by an insurer is used for agricultural purposes and a proceeding to foreclose the security instrument or an insolvency proceeding relating to the mortgagor has been commenced, or if the mortgagor has made an assignment for the benefit of creditors, the insurer may, for the purpose of preserving or enhancing the earnings of such property:
(a) Purchase agricultural livestock or equipment and utilize the same or cause the same to be utilized in the operation of the property by the mortgagor, or a receiver or trustee, or by the insurer-creditor; or
(b) Lend up to the value of any agricultural equipment or livestock which may be used in the operation of the property, on the security of a first lien on such equipment and livestock.

185

INVESTMENTS

56-1025

(2) Nothing in this section shall be deemed to limit any right which the insurer may otherwise have under or with respect to any such loan, mortgage, or investment.
56-1024. Authority to sell and buy property or securities in which money has been invested.-Insurance companies organized and doing business by virtue of the laws of this State may sell, assign, transfer, and convey, either with or without warranty, or either with or without recourse upon it, as it may prefer, any real estate, personal property, bond, note, mortgage, deed of trust, deed to secure debt, or other form of property or securities in which it may have invested its money or its assets or on which it may have made loans as allowed by law, and may also buy and sell any realty that may be necessary for the protection of any loan such insurance company may lawfully make.
56-1025. Chattel mortgages.-(1) In connection with a loan on the security of real estate designed and used primarily for residential purposes only, which loan was acquired pursuant to section 56-1022, an insurer may lend or invest an amount not exceeding twenty (20%) percent of the amount loaned on or invested in such real estate mortgage or loan deed on the security of a chattel mortgage to be amortized by regular periodic payments within a term of not more than five years, and representing a first and prior lien, except for taxes not then delinquent, on personal property constituting durable equipment owned by the mortgagor or security grantor and kept and used in the mortgaged premises.
(2) For the purpose of this section, the term "durable equipment" shall include only mechanical refrigerators, air conditioning equipment, mechanical laundering machines, heating and cooking stoves and ranges, and, in addition, in the case of apartment houses and hotels, room furniture and furnishings.
(3) Prior to the acquisition of a chattel mortgage hereunder, items of property to be included therein shall be

56-1026 .

INVESTMENTS

186

separately appraised by a qualified appraiser and the fair market value thereof determined. No such chattel mortgage loan shall exceed in amount the same ratio of loan to the value of the property as is applicable to the companion loan on the real property.
( 4) This section shall not prohibit an insurer from taking liens on personal property as additional security for any investment otherwise eligible under this Chapter.
56-1026. Special investments by title insurer.-(1) In addition to other investments eligible under this Chapter, a title insurer may invest and have invested an amount not exceeding fifty (50%) percent of its paid-in capital stock in its abstract plant and equipment, and with the Commissioner's consent, in stocks of abstract companies.
(2) Investments authorized by this section shall not be credited against the insurer's required unearned premium or guaranty fund reserve provided for under section 56-911.
56-1027. Special consent investments.-After satisfying requirements of this Chapter, any funds of any domestic insurer in excess of its reserve and capital (if a stock insurer), or surplus (if a mutual or reciprocal insurer), required to be maintained, may be invested without limitation in any investments otherwise authorized by this Title, and, in addition, in such other investments, notwithstanding any prohibition contained in section 56-1028, as may be approved by the Commissioner; provided, however, that approval of the Commissioner is not required except to the extent such investments constitute more than five per cent of the total assets of an insurer.
56-1028. Real estate, in general. - (1) An insurer shall not directly or indirectly acquire or hold real estate except as authorized in this section and in sections 561029 through 56-1031. An insurer may acquire and hold:
(a) Such land and buildings thereon used or acquired

137

INVESTMENTS

56-1029

for use as its principal home office and branch offices for the convenient transaction of its own business. Portions of such buildings not used for its own business may be rented by the insurer to others.
(b) Real property acquired in satisfaction in wh_ole or in part of loans, mortgages, liens, judgments, decrees or debts previously owing to the insurer in the course of its business.
(c) Real property acquired in part payment of the consideration on the sale of other real property owned by it, if such transaction effects a net reduction in the insurer's investment in real estate.
(d) Real property acquired by gift or devise, or through merger, consolidation, or bulk reinsurance of another insurer under this Title.
(e) Additional real property and equipment incident to real property, if necessary or convenient for the enhancement of the marketability or sale value of real property previously acquired or held by it under subsections (b) through (d), above, but subject to the prior written approval of the Commissioner.
(2) The amount invested by an insurer in home office and branch office property under subsection (1) (a), above, shall not exceed ten (10 % ) percent of the insurer's admitted assets, but the Commissioner may grant permission to the insurer to invest in real property for such purpose in an increased amount not to exceed twenty-five (25 % ) percent of admitted assets.
56-1029. Investments in real estate for leasing.-(1) Authority to make ; terms and conditions.-Every insurance company organized and doing business by virtue of the laws of this State shall have authority, in addition to all other investments authorized by law, to invest assets in real estate acquired for the purpose of leasing the same to any person, firm or corporation, or in real estate al-

56-1029

I N VE S T MENTS

188

ready leased to any person, firm or corporation, under the following terms and conditions:
(a) That the lessee shall at his own cost erect, or that there has already been erected, thereon, free of liens; a building or other improvements costing an amount at least equal to the value of the said real estate exclusive of improvements; but if the lease be entered into simultaneously with the purchase of the real estate, the lessor may agree to erect such improvements on such real estate ;
(b) That the said improvements shall remain on the said property during the period of the lease, with provisions when such improvements are put upon the said property at the cost of the lessee that at the termination of the lease the ownership of such improvements free of liens shall vest in the owner of the real estate;
(c) That the lessee shall during the term of the lease, or the unexpired period of the lease if the property be bought subject to the lease, pay to the owner of the real estate rent in such amount as will enable the owner to amortize completely the improvements thereon according to a standard amortization table then in use at or before the end of the normal termination of the lease or at the end of thirty (30) years should the lease, or the unexpired period of the lease, be for a longer period than thirty (30) years; and
(d) That during the term of the lease the tenant shall pay all taxes and assessments levied on or against the said real estate, including improvements, shall keep and maintain the said improvements in good repair and shall provide and maintain for the benefit of the lessor fire and extended coverage insurance on such improvements at least equal to the then current insurable value of the improvements.
(2) Time when to be treated as investment; effect if lessee a corporation whose securities are legal investments.-Real estate acquired pursuant to the provisions of this law shall not be treated as an investment unless

189

INVESTMENTS

56-1030

and until the improvements herein required shall have been constructed and the lease agreement entered into in accordance with the terms of this section, but if the lessee be a corporation the bonds, debentures, notes or preferred stock of which are eligible as investments under the law of Georgia, the requirements of this section as to the erection of improvements by the lessee, the cost of such improvements and the vesting of ownership of such improvements in the owner of the real estate shall not be applicable.
(3) Treatment as admitted asset.-Real estate acquired under authority of this section shall not be treated as an admitted asset in an amount in excess of the actual investment reduced each year by decrements out of the income from said property sufficient to write off completely, based on standard amortization tables in general use, the improvements at the normal termination of the lease or at the end of thirty (30) years should the term of the lease, or the unexpired period of the lease, be for a longer period than thirty (30) years.
(4) Limitation of amount.-The total investment of any company under this section shall not exceed five (5 % ) percent of its admitted assets. No investment shall be made by any company pursuant to this section which will cause such company's investment in all real property owned by it to exceed twenty-five (25%) percent of its admitted assets or when all real property owned by such company equals or exceeds twenty-five (25%) percent of its admitted assets.
56-1030. Real estate for employee facilities.-Subject to prior approval of the Commissioner, an insurer may acquire and hold real property for recreation, hospitalization, convalescence and retirement purposes of its employees. All investments under this section shall not exceed five (5 % ) percent of the insurer's surplus; or if a mutual or reciprocal insurer, all such investments shall not exceed five (5 % ) percent of the insurer's surplus in excess of the surplus required to be maintained under this Title for its authority to transact insurance.

56-1031 .

INVESTMENTS

' 190

56-1031. Real estate; limits of investment.-No investment in real property shall be made by any insurer pursuant to sections 56-1029 or 56-1030 which will cause the insurer's investment in all real property owned or held by it directly or indirectly to exceed twenty-five (25 % ) percent of its admitted assets.
56-1032. Time limit for disposal of real estate.-(1) Except as provided in subsection (4), below, an insurer shall dispose of real property within time limits as follows:
(a) If acquired under section 56-1028(1) (a) or section 56-1030, the insurer shall sell the property within five years after it ceased to be used or to be necessary for the purposes stated therein.
(b) If acquired under subsections (b), (c), or (d) of section 56-1028 (1), the insurer shall sell the property within five years after the insurer acquired title thereto.
(c) If acquired under section 56-1028(1) (e), the insurer shall sell the property within five years after the date of acquisition by the insurer of the real property the marketability or sales price of which was so enhanced.
(d) If acquired under section 56-1029, the insurer shall within five years after the termination or expiration of the lease, sell the property or re-lease the property for an additional term under the same conditions provided for in section 56-1029 as for an original leasing.
(2) Any real property otherwise subject to disposal under subsections (b) through (d), above, may be retained by the insurer for home office or branch office purposes for so long as so used, and subject to provisions otherwise applicable to such home office and branch office property.
(3) Any real property otherwise subject to disposal under subsections (a), (b), or (c), above, may be retained by the insurer for leasing under section 56-1029

19 1 '

INVESTMENTS

56-1034

for so long as so used, and subject to provisions otherwise applicable to such real property for leasing.
(4) Upon proof satisfactory to him that the interests of the insurer will suffer materially by the forced sale thereof, the Commissioner may by certificate, grant a reasonable additional period, as specified in the certificate, within which the insurer shall dispose of any particular parcel of real property.
(5) Nothing contained in this section shall prevent any insurer from improving or conveying its real property, notwithstanding the lapse of five years without having procured such certificate from the Commissioner.
56-1033. Time limit for disposal of other ineligible property and securities.-Any person property or securities lawfully acquired by an insurer which it could not otherwise have invested in or loaned its funds upon at the time of such acquisition, shall be disposed of within three years from date of acquisition unless within such period the security has attained to the standard of eligibility; except, that any security or personal property acquired under any agreement of bulk reinsurance, merger, or consolidation, may be retained for a longer period if so provided in the plan for such reinsurance, merger, or consolidation as approved by the Commissioner under Chapter 56-15. Upon application by the insurer and proof that forced sale of any such property or security would materially injure the interests of the insurer, the Commissioner may extend the disposal period for an additional reasonable time.
56-1034. Failure to dispose of real estate, property, or securities; effect, penalty.-(1) Any real estate, personal property, or securities lawfully acquired and h eld by an insurer after expiration of the period for disposal thereof or any extension of such period granted by the Commissioner, as provided in sections 56-1032 or 56-1033, shall not be allowed as an asset of the insurer.

56-1035

INVESTM E NTS

192

(2) The insurer shall forthwith dispose of any ineligible investment unlawfully acquired by it, and the Commissioner may suspend or revoke the insurer's certificate of authority if the insurer fails to dispose of the investment within such reasonable time as the Commissioner may, by his order, specify.
56-1035. Prohibited investments and investment underwriting.- (1) In addition to investments excluded pursuant to other provisions of this Title, an insurer shall not directly or indirectly invest in or lend its funds upon the security of:
(a) Any investment or security which is found by the Commissioner to be designed to evade any prohibition of this Title.
(b) Issued shares of its own capital stock, except for the purpose of mutualization under Chapter 56-15, or in connection with a plan approved by the Commissioner for purchase of such shares by the -insurer's employees or agents.
(c) Except with the advance consent of the Commissioner, securities issued by any corporation or enterprise the controlling interest of which is, or will after such acquisition by the insurer be, held directly or indirectly by the insurer or any combination of the insurer and the insurer's directors, officers, parent corporation, subsidiaries, or controlling stockholders. Investments in subsidiaries, to the extent otherwise authorized by this Chapter, shall I).Ot be subject to this provision.
(d) Any note or other evidence of indebtedness of any director, officer, or controlling stockholder of the insurer, except as to policy loans authorized under section 561018.
(2) No insurer shall underwrite or participate in the underwriting of an offering of securities or property by any other person.

193

INVESTMENTS

56-1037

56-1036. Investments of foreign and alien insurers.-
(1) The investments of foreign and alien insurers shall be as permitted by the laws of their domicile but shall be of a quality substantially as high as those required under this Chapter for similar funds of like domestic insurers.
(2) For the purposes of this section the domicile of an alien insurer, other than insurers formed under the laws of Canada, shall be that state designated by the insurer in writing filed with the Commissioner at time of admission to this State or within six months after the effective date of this Act, whichever date is the later, and may be any one of the following states:
(a) That in which the insurer was first authorized to transact insurance;
(b) That in which is located the insurer's principal place of business in the United States;
(c) That in which is held the larger deposits of trusteed assets of the insurer for the protection of its policyholders and creditors in the United States.
If the insurer makes no such designation its domicile shall be deemed to be that state in which is located its principal place of business in the United States.
In the case of the insurer formed under the laws of Canada or a province thereof, its domicile shall be deemed to be that province in which its head office is situated.
56-1037. Investment in securities of Inter-American
Development Bank.-An insurer may invest in obligations issued, assumed or guaranteed by the Inter-American Development Bank. The investments authorized by this section shall not be counted as an investment of reserves of section 56-1005, subsection (4) at any one time in an amount greater than five per cent. of the insurer's admitted assets.

56-1038

INVESTMENTS

194

56-1038. Separate accounts for pension, retirement, and profit-sharing plans; investment of funds.- (a) Any domestic life insurance company may establish one or more separate accounts, and may allocate to such separate account or accounts, in accordance with the terms of a written agreement, any amounts paid to the company in connection with a pension, retirement or profit-sharing plan, which is established by or in behalf of any group listed in section 56-2701, which are to be applied to provide benefits payable in fixed or variable dollar amounts.
(b) The amounts allocated to each such account and accumulations thereon may be invested and reinvested in any class of investments which may be authorized in the written agreement without regard to any requirements or limitations prescribed by the laws of this State governing the investments of domestic life insurance companies: Provided, that to the extent that the company's reserve liability, with regard to (1) benefits guaranteed as to amount and duration, and (2) funds guaranteed as to principal amount or stated rate of interest, is maintained in any separate account, a portion of the assets of such separate account at least equal to such reserve liability shall be invested in accordance with the laws of this State governing the investment of reserves of domestic life insurance companies, as set forth in section 56-1005
(4). The investments in such separate account or accounts shall not be taken into account in applying the investment limitations applicable to other investments of the company.
(c) The income, if any, and gains and losses, realized or unrealized on each account, shall be credited to or charged against the amounts allocated to the account in accordance with the written agreement, without regard to other income, gains or losses of the company.
(d) Assets allocated to a separate account shall be valued at their market value on the date of valuation, or if there is no readily available market, then in accordance

195

INVESTMENTS

56-1038

with the terms of the applicable written agreement: Provided, that the portion of the assets of such separate account at least equal to the company's reserve liability with regard to the guaranteed benefits and funds referred to in subsection (b) hereof, if any, shall be valued in accordance with the rules otherwise applicable to the company's assets.
(e) Amounts allocated to a separate account in the exercise of the power granted by this section shall be owned by the company, and the company shall not be, nor hold itself out to be, a trustee with respect to such amounts.
(f) If the agreement provides for payment of benefits in variable amounts, any contract entered into pursuant to the provisions of this section and delivered in this State providing for such variable benefits shall be a group annuity contract. Such contract shall (1) cover at least 10 persons at the time it is entered into, (2) be for the purpose of funding a pension, retirement or profit-sharing plan or agreement which meets the requirements for qualification under section 401 or 403 of the United States Internal Revenue Code, as now or hereafter amended, or any corresponding provisions of prior or subsequent United States revenue laws, and (3) prohibit the allocation to the separate account of any payment or contribution made by any employee. Such contract shall contain a statement of the essential features of the procedure to be followed by the company in determining the dollar amount of such variable benefits. Such contract and any group certificate issued thereunder shall state that such dollar amount may decrease or increase and shall contain on its first page, in a prominent position, a statement that the benefits thereunder are on a variable basis.
(g) No domestic life insurance company, and no foreign or Canadian life insurance company admitted to transact business in this State, shall be authorized to deliver within this State any contract entered into pursuant to the provisions of this section and providing benefits

56-1039

INVESTMENTS

196

in variable amounts until said company has satisfied the commissioner that its condition or methods of operation in connection with the issuance of such contracts will not be such as would render its operation hazardous to the public or its policyholders in this State. In determining the qualification of a company requesting authority to deliver such contracts in this State, the commissioner shall consider, among other things:
(1) The history and financial condition of the company;
(2) The character, responsibility and general fitness of the officers and directors of the company; and
(3) In the case of a foreign or Canadian company, whether the regulations provided by the State of its domicile or that province in which its head office is located provides a degree of protection to policyholders and the public which is substantially equal to that provided by this section and the rules and regulations issued thereunder.
(h) Notwithstanding any other provisions of law, the commissioner shall have sole authority to issue such reasonable rules and regulations as may be necessary to carry out the purposes and provisions of this section.
(i) Nothing herein shall be deemed to repeal any provision of section 56-2508; and no contract or agreement made pursuant to the provisions of this section 56-1038, or policy or certificate issued hereunder, shall be construed to violate the provisions of said section 562508.
56-1039. Loans guaranteed by the Georgia Higher Education Assistance Corporation. - An insurer may make and invest in loans guaranteed as to principal and interest by the Georgia Higher Education Assistance Corporation to the extent of such guaranty.

197

INVESTMENTS

56-1040

56-1040. Variable Annuity Contracts.-This Section is cumulative of and in addition to the authority granted by any other law of this State relating to separate accounts for insurance companies or to annuity contracts on a variable basis, and shall not be deemed to repeal or affect the provisions of Georgia Code Section 56-1038 (Ga. L. 1966, p. 57) dealing with the group variable annuity contracts referred to in such section or to affect such contracts, and all other laws and parts of laws in conflict with this Act are hereby repealed to the extent only of such conflict.
(a) When used in this section, the term "variable annuity contract" shall mean any individual or group contract issued by an insurance company providing for annuity benefits and incidental contractual payments or values which vary in whole or in part so as to reflect investment results of any segregated portfolio of investments or of a designated separate account or accounts in which amounts received or retained in connection with any of such contracts have been placed.
(b) Any domestic life insurance company may establish one or more separate accounts and may allocate thereto amounts to provide for annuities (and benefits incidental thereto) payable in fixed or variable amounts or both.
(c) Except as hereinafter provided, amounts allocated to any separate account and accumulations thereon may be invested and reinvested without regard to any requirements or limitations prescribed by the laws of this state governing the investments of domestic life insurance companies; provided, that to the extent that the company's reserve liability with regard to ( 1) benefits guaranteed as to amount and duration, and (2) funds guaranteed as to principal amount or stated rate of interest is maintained in any separate account, a portion of the assets of such separate account at least equal to such reserve liability shall be invested in accordance with the laws of this state governing the investment of reserves of life in-

56-1040

INVESTMENTS

198

surance companies. The investments in such separate account or accounts shall not be taken into account in applying the investment limitations applicable to other investments of the company.
(d) To the extent any such domestic company deems it necessary to comply with any applicable federal or state laws, such company, with respect to any separate account, including without limitation any separate account which is a management investment company or a unit investment trust, may provide for persons having an interest therein, appropriate voting and other rights and special procedures for the conduct of the business of such account, including without limitation special rights and procedures relating to investment policy, investment advisory services, selection of independent public accountants, and the selection of a committee, the members of which need not be otherwise affiliated with such company, to manage the business of such account. This provision shall not affect existing laws pertaining to the voting rights of the life insurance company's stockholders or policyholders except as herein provided.
(e) No domestic company shall, for any separate account, purchase the voting securities of a single issuer if such purchase would result in such company and all domestic insurance companies directly or indirectly controlling, controlled by, or under common control with such company holding in such company's or companies' separate account or accounts in excess of 10 % of the total issued and outstanding voting securities of such issuer provided that the foregoing shall not apply with respect to securities held in separate accounts, the voting rights in which are exercisable in accordance with instructions from persons having interests in such accounts. This limitation shall not apply to the investment for a separate account in the securities of an investment company registered under the Investment Company Act of 1940.
(f) No sale, exchange or other transfer of assets may be made by any such domestic company between any

INVESTMENTS

56-1040

of its separate accounts or between any other investment account and one or more of its separate accounts unless, in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made, and unless, such transfer, whether into or from a separate account, is made (a) by transfer of cash, or (b) by a transfer of securities having a readily determinable market value, provided that such transfer of securities is approved by the Insurance Commissioner. The Insurance Commissioner may approve other transfers among such accounts if, m his opinion, such transfers would not be inequitable.
(g) The income, if any, and gains and losses, realized or unrealized, from assets allocated to each account shall be credited to or charged against the account without regard to other income, gains or losses of the company.
(h) Unless otherwise approved by the Insurance Commissioner, assets allocated to a separate account shall be valued at their market value on the date of valuation, or if there is no readily available market, then as provided under the terms of the contract or the rules or other written agreement applicable to such separate account; provided, that the portion of the assets of such separate account equal to the company's reserve liability with regard to the guaranteed benefits and funds referred to in subsection (c) hereof, if any, shall be valued in accordance with the rules otherwise applicable to the company's assets. The reserve liability for variable annuity contracts shall be determined in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.
(i) The amounts held in any such separate account shall not be chargeable with liabilities arising out of any other business the company may conduct but shall be held and applied exclusively for the benefit of the owners or beneficiaries of the variable annuity contracts applicable thereto.

56-1040

INVESTMENTS

200

(j) Each domestic life insurance company shall have the power within th e limits of its corporate charter to do all things necessary under any applicable state or federal law in order that variable annuity contracts may be lawfully sold or offered for sale including, without limitation, the power to provide for management of a separate account by persons who may otherwise b e unaffiliated with the life insurance company and the power to grant in connection with such contracts such voting rights as are set forth in (d) above. Each domestic life insurance company may allocate from its general accounts to each separate account established under this section an initial cash amount necessary to meet minimum capitalization requirements for such account as prescribed by the Securities and Exchange Commission, provided, that the total of all such allocations shall not exceed 10 % of the company's assets or $1,000,000, whichever is less. Any such allocation may be withdrawn when sufficient amounts have been received by the company in connection with variable annuity contracts and allocated to a separate account to meet the minimum capitalization requirement.
(k) Amounts allocated to a separate account in the exercise of the power granted by this Section shall be owned by the company, and the company shall not be, or hold itself out to be, a trustee with respect to such amounts.
(I) Any variable annuity contract providing benefits payable in variable amounts issued under this Section shall contain a statement of the essential features of the procedure to be followed by the company in determining the dollar amount of such variable benefits. Any such contract, including a group contract and certificate in evidence of variable benefits issued thereunder shall state that such dollar amount will vary to reflect investment experience and shall contain on its first page a statement to the effect that benefits thereunder are on a variable basis.
(m) No company shall deliver or issue for delivery

201

INVESTMENTS

56-1040

variable contracts within this state unless ( 1) it is licensed or organized to do a life insurance or annuity business in this state; and (2) the Commissioner is satisfied that its condition or method of operation in connection with the issuance of such contracts will not render its operation hazardous to the public or its policyholders in this state. In this connection, the Commissioner shall consider among other things:
1. The history and financial condition of the company; 2. The character, responsibility and fitness of the officers and directors of the company; and 3. The law and regulation under which the company is authorized in the state of domicile to issue variable contracts.
(n) The Insurance Commissioner shall have sole and exclusive authority to regulate the issuance or sale of such contracts and to issue such reasonable rules and regulations as may be necessary to carry out the purposes and provisions of this Section; and such contracts, the companies which issue them and the agent or other persons who sell them shall not be subject to the Georgia Securities Act in the sale of such contracts.
(o) Notwithstanding any other laws of this State, no person shall, within this State, sell or offer for sale variable annuity contracts as defined in this Act unless such person shall have both a valid and current life insurance license and variable annuity license issued by the Insurance Commissioner. No such license shall be issued unless and until the Insurance Commissioner is satisfied, after examination, that such person is by training, knowledge, ability and character qualified to act as such a variable annuity agent. The Commissioner may reject any application or suspend or revoke or refuse to renew any variable annuity agent's license upon any ground that would bar such applicant or such agent from being licensed to sell life insurance contracts in this State or for the violation of any Federal or State securities laws or regulations. The rules governing any proceedings relating to the suspension or revocation of a life insurance agent's license shall

56-1040

ADMINISTRATION OF DEPOSITS

202

also govern any proceedings for the ~uspension or revocation of a variable annuity agent's license. Renewal of a variable annuity agent's license shall follow the same procedure established for renewal of an agent's license to sell life insurance contracts in this State.
( p) No contract or agreement made pursuant to the provisions of this Section, or policy or certificate issued hereunder, shall be construed to violate the provisions of Georgia Code Section 56-2508 (Ga. L. 1960, pp. 289, 689) and the sale or offer of any such policy or certificate shall not be deemed an unfair method of competition of an unfair or deceptive act or practice in the business of insurance in violation of the provisions of Georgia Code Sections 56-704 (6) and 56-704 (8) (Ga. L. 1960, pp. 289, 386, 397).
(q) Except for Georgia Code Sections 56-2602 (1), 562602 (5) and 56-2602 (6) (Ga. L. 1960, pp. 289, 692) and except as otherwise provided in this Act, all pertinent provisions of the Georgia Insurance Code shall apply to separate accounts and variable annuity contracts relating thereto. The Insurance Commissioner, by regulation, may require that any individual variable annuity contract delivered or issued for delivery in this state contain provisions as to grace period and reinstatement appropriate for a variable annuity contract.

CHAPTER 56-11
ADMINSTRATION OF DEPOSITS.
56-1101. Deposits of insurers. 56-1102. Purpose of deposits. 56-1103. Assets eligible for deposit. 56-1104. Trust companies as depositories. 56-1105. Rights of insurer during solvency. 56-1106. Excess deposits. 56-1107. Deficiency of deposit. 56-1108. Release of deposits.

203

A D M I N I STRATION OF DE POSITS

56-1101

56-1109. Release only on order. 56-1110. Deposit not subject to levy. 56-1111. Retention of bonds in case of loss by insured;
appointment of receiver to take charge. 56-1112. Receiverships; procedure by receiver; sale of
securities. 56-1113. Receiverships; multiple claims. 56-1114. Additional deposit when amount reduced be-
low amount required; revocation of license on failure to make. 56-1115. Notice of claim; void after seven years unless renewed; procedure where claim settled. 56-1116. General receivership. 56-1117. Withdrawal of deposit by insurance company.
56-1101. Deposits of lnsurers.-(1) Deposits required or permitted by law to be made by domestic life insurers shall be made with the State Treasurer as Custodian for the Commissioner or with some strong corporation which may be approved by the Commissioner, but all deposits in this State by other insurers shall be made with the State Treasurer of Georgia or some strong financial institution designated by him. Whenever in this Chapter the expression "the State" is used, rather than "the State of Georgia" or "this State", it means in relation to deposits by domestic life insurers, the Insurance Commissioner of Georgia, and in relation to deposits of other insurers, the State Treasurer of Georgia.
(2) When notice is given to the Commissioner by an insured or other person as provided in section 56-1111, the Commissioner shall take charge as receiver of securities of sufficient market value, if in his custody as Commissioner at the time, to satisfy the judgment. Thereafter the procedure with reference to order, sale, and disposition of the proceeds shall be as provided in section 56-1112.
(3) Whenever, by means of the provisions of sections 56-1111 through 56-1113, the amount of securities deposited with the State Treasurer shall be reduced, the State

56-1102

ADMINISTRATION OF DEPOSITS

204

Treasurer shall at once notify the Commissioner in writing, who shall give notice to the insurer as provided in section 56-1114.
(4) The State shall accept and hold in trust deposits of securities or funds by insurers as follows:
(a) Deposits required for authority to transact insurance in Georgia;
(b) Deposits of domestic, foreign or alien insurers when made pursuant to the laws of other states, provinces and countries as prerequisite for authority to transact insurance in such state, province or country;
(c) Deposits in such additional amounts as are permitted to be made by section 56-1106.
56-1102. Purpose of deposits.-Such deposits shall be held as follows:
( 1) When the deposit is required for authority to transact insurance in Georgia, the deposit shall be held for the protection of all the insurer's policyholders or others entitled to the proceeds of policies within the United States; Provided, this shall not apply to a deposit made under section 56-310;
(2) When the deposit is required pursuant to the laws of another state, commonwealth, territory, district of the United States, province or country, the deposit shall be held for such purposes as is required by such laws and as specified by the Commissioner at the time the deposit is made;
(3) When the deposit is required pursuant to the retaliatory provision, section 56-321, the deposit shall be held for purposes as specified in the Commissioner's order requiring the deposit.

56-1103. Assets eligible for deposit.-(1) All such

205

ADMINISTRATION OF DEPOSITS

56-1106

deposits required for authority to transact insurance in Georgia shall consist of any combination of the securities in which the insurer may lawfully invest under Chapter 56-10, except real estate, notes secured by real estate, stocks, or investment trust or investment company shares.
(2) All such deposits required pursuant to the la'ws of another state, province or country, or pursuant to the retaliatory provisions, section 56-321, shall consist of such assets as are required or permitted by such laws, or as required pursuant to such retaliatory provision.
56-1104. Trust companies as depositories.-(!) The State may designate any regularly constituted State depository having trust powers domiciled in this State as a depository to receive and hold any such deposit. Any such deposit so held shall be at the expense of the insurer. Such depository shall give to the State proper trust and safekeeping receipt upon which the State shall give official receipt to the insurer.
(2) The State of Georgia shall be responsible for the safekeeping and return of all securities deposited pursuant to this Title with the State or in any depository so designated.
56-1105. Rights of insurer during solvency.-So long as the insurer remains solvent and complies with this Title it may:
( 1) Demand, receive, sue for and recover the income from the securities deposited;
(2) Exchange and substitute for the deposited securities, or any part thereof, with the approval of the Commissioner, eligible securities of equivalent or greater value; and
(3) Inspect at reasonable times, any such deposit.
56-1106. Excess deposits.-An insurer may deposit

56-1107

ADMINISTRATION OF D EPOS IT S

206

eligible securities in an amount exceeding its deposit required or otherwise permitted under this Title by not more than one hundred thousand ($100,000) dollars, for the purpose of absorbing fluctuations in the value of securities held in its deposit, and to facilitate the exchange and substitution of securities deposited. During the solvency of the insurer any such excess deposit or part thereof shall be released to the insurer upon its request, subject to the provisions of section 56-1109. During the insolvency of the insurer such excess deposit shall be released only as provided in section 56-1108.
56-1107. Deficiency of deposit.-If for any reason the market value of assets and securities of an insurer held on deposit in this State under this Title falls below the amount so required, the insurer shall promptly deposit other or additional assets or securities eligible for deposit sufficient to cure such deficiency. If the insurer has failed to cure the deficiency within thirty (30) days after receipt of notice thereof by registered mail from the Commissioner, the Commissioner shall revoke the insurer's certificate of authority.
56-1108. Release of deposits.-Any deposit made in this State under this Title shall be released:
( 1) To the insurer upon extinguishment by reinsurance or otherwise of all liability of the insurer for the security of which the deposit is held;
(2) To the insurer to the extent such deposit is in excess of the amount required; or
(3) Upon proper order of a court of competent jurisdiction, to the receiver, conservator, rehabilitator or liquidator of the insurer, or to any other properly designated official or officials who succeed to the management and control of the insurer's assets.
56-1109. Release only on order.-No such release of deposited funds shall be made except upon application to and the written order of the Commissioner. The Commis-

207

ADMINISTRATION OF DEPOSITS

56-1112

sioner shall have no liability for any such release of any such deposit or part thereof so made by him in good faith.

56-1110. Deposit not subject to levy.-No judgment creditor or other claimant of an insurer shall levy upon any deposit held pursuant to this Title, or upon any part thereof; except, that such levy may be permitted if so specified in the Commissioner's order requiring the deposit pursuant to the retaliatory provision, section 56-321.

56-1111. Retention of bonds in case of loss by insured;
appointment of receiver to take charge.-Whenever any loss insured against shall occur, the insured, or other person entitled to the proceeds of the policy, by judgment or otherwise; in order to secure his recovery, may give notice to the State of the occurrence of said loss and of the amount claimed, after which notice the State shall be bound to retain, subject to the order of the Georgia court of competent jurisdiction trying any suit that may be brought for the recovery of such loss, or any suit which may be brought upon any judgment obtained in the courts of another state, or the courts of the United States, on account of such loss, a sufficient amount to pay the judg- . ment in said case in event of recovery; and, if the amount for which the depositing insurer is liable shall not be paid within thirty (30) days, said plaintiff may file an application with the judge of the superior court of the county where the case was tried for appointment of the Commissioner as receiver to take charge of as many securities as shall be necessary to satisfy the aforesaid judgment.

56-1112. Procedure by receiver; sale of securities.-
The State Treasurer, on application by the receiver, shall deliver to him securities of sufficient market value, if in his custody, to satisfy said judgment. The receiver's receipt shall be a complete discharge to said Treasurer and the State of Georgia. The receiver shall apply to the judge of the superior court for an order of sale, and, in pursuance of said order, shall sell said securities. After deducting such expenses as shall be allowed by the court, he shall pay over to the plaintiff or his attorney a sufficient amount to satisfy the judgment; and, if there shall remain

56-111 3

ADMIN ISTRATION OF DEPOSITS

208

any residue in the hands of such receiver, he shall pay over the same to the agent of the depositing company taking his r eceipt for the same, which shall be filed and recorded with the other papers in the case.
56-1113. Receiverships; multiple claims.-If receiverships are ordered for the purpose of holding securities for the future satisfaction of more than one claim, the State shall deliver to the receiver securities to be applied to the judgments in the order of the appointments as receiver. If under this and the preceding sections the receiver applies for securities and learns from the State that the insurer has on deposit insufficient securities to cover the claim and if there is another receivership or there are other receiverships in this State against the same insurer in which distribution has not been completed, the Commissioner shall institute proceedings fo:r a general receivership under Chapter 56-14.
56-1114. Additional deposit when amount reduced below amount required; revocation of license on failure to make.-Whenever, by means of the provisions of sections 56-1111 through 56-1113, the amount of securities so deposited shall be reduced, the Commissioner shall give notice to the insurer depositing, and require more securities to be deposited, so as always to maintain the original amount; and if the company so notified by the Commissioner shall fail to comply within thirty (30) days, the certificate of authority to do business in this State shall be revoked, and said Commissioner shall at the same time give notice, by publication of display advertising in bold type in a newspaper of general circulation throughout the State of the fact of such failure and revocation of certificate of authority; the cost of which publication shall be paid by the company failing to comply with the provisions of this law.
56-1115. Notice of claim; void after seven years unless renewed; procedure where claim settled.-Whenever a notice of claim is filed with the State as provided by law against the deposit of any insurance company doing business in Georgia, and said claim has not been withdrawn

209 '

AcTIONS AGAINST INsURANCE CoMPANIES 56-1117

at the expiration of seven years from the date of such notice of claim, the State is hereby authorized to treat such notice as void and not binding unless the notice of claim is renewed within said seven year period. In the event the State determines that a claim on which notice has been filed, and not released by claimant, has been settled or disposed of in any manner, it is authorized to proceed as if such notice of claim had never been filed.
56-1116. General receivership.-Whenever a general receivership under Chapter 56-14 is ordered by a Georgia court it shall supersede receiverships created under sections 56-1111 through 56-1113.
56-1117. Withdrawal of deposit by insurance company.-When any depositing company shall desire to withdraw any deposit made with the State hereunder, and the Commissioner shall find that such deposit is no longer required, in whole or in part, in order to comply with the laws of this or any other state, he may to such extent release such deposit, and his certificate to that effect shall authorize the State to return the deposit so released to the depositing company. A certificate from the Commissioner (or other official authorized to administer the insurance laws) of any other state or states, that the depositing company has fully satisfied or made provision for the full payment and satisfaction of all policy obligations therein, or that such policy obligations therein have been otherwise adequately provided for, shall be sufficient evidence that the deposit is no longer required by the laws of such other state or states; Provided, however, that any notice of loss theretofore given in conformity with this law shall remain effective, and the State shall nevertheless retain securities in an amount sufficient to meet the requirements of sections 56-1111 and 56-1112.
CHAPTER 56-12
ACTIONS AGAINST INSURANCE COMPANIES.
56-1201. Venue. 56-1202. Service of process. 56-1203. Service of process; alien or foreign insurers.

56-1201 AcTIONs AGAINST INs U RANCE C oMPANIES

210

56-1204. 56-1205.
56-1206.

Service of process on Commissioner. Service of process; nonresident cooperative or assessment life insurers. Liability of insurer for damages and attorney's fees.

56-1201. Venue.-Except for actions ar1smg against unauthorized insurers or under surplus line contracts which are provided for in Chapter 56-6, whenever any person shall have a claim or demand on any insurer, such person may institute suit in any of the following places:

(1) In the county where the principal office of the company is located; or

(2) In any county where the company shall have an agent or place of doing business; or

(3) In any county where such agent or place of doing business was located at the time the cause of action accrued or the contract was made out of which such cause of action arose.

(4) In any county where the property covered by an insurance contract upon which an action is brought is located or where the person entitled to the proceeds of an insurance contract upon which action is brought maintains his legal residence. For the purpose of this subsection personal property shall be deemed to be located in the county of the legal residence of the owner thereof, and for the purpose of bringing suit under this subsection a company which has written a contract of insurance upon persons or property located in a particular county, or which has become surety for the performance of an obligation in a particular county shall be deemed to be transacting business in such county and shall be deemed to be a legal resident of such county; Provided further, that any action or suit on the bond of a sheriff, or other arresting or law enforcement officer, upon which any guaranty or surety company or fidelity insurance company is bound and obligated as su~ety, shall be instituted in the county of the residence of such officer, and not in any other

211

AcTIONS AGAINST INsURANCE CoMPANIES 56-1204

county ; and the county of the residence of such officer is hereby fixed as the venue of any action or suit on such bond; and such officer may be made a party defendant or may by intervention become a party defendant.
56-1202. Service of process. - Service of process against a domestic insurer may be made upon the insurer corporation in the manner provided by laws applying to corporations generally, or upon the insurer's attorney-infact if a reciprocal insurer or a Lloyd's Association.
56-1203. Service of process; alien or foreign insurers. -Each authorized alien or foreign insurer shall make the following appointments for service of process:
(1) Each such insurer shall file with the Commissioner a power of attorney appointing a person who is a resident of this State to receive service of legal process issued against it in Georgia upon any cause of action arising from its transactions of business in this State. Such power of attorney shall be irrevocable and may only be terminated by the filing of a new appointment by the insurer.
(2) Each such insurer shall appoint the Commissioner as its attorney to receive service of legal process issued against it in Georgia upon any cause of action arising from its transactions of business in this State. Such appointment shall be irrevocable, shall bind any successor and shall remain in effect as long as there is in force in Georgia any contract made by the insurer or obligations arising therefrom. Each such insurer at time of application for a certificate of authority shall file with the Commissioner the designation of the name and address of the person to whom process against it served upon the Commissioner is to be forwarded. The insurer may change such designation by a new filing. Service of process upon the Commissioner, however, shall only be made when service cannot be effected in this State by serving the attorney-in-fact appointed by the insurer as provided under subsection (1) above.
56-1204. Service of process on Commissioner.-(!)

56-1205 AcTioNs AGAINST INsURANCE CoMPANIEs

212

In addition to other methods of service provided by law, a foreign or alien insurer may be served with legal process by service of duplicate copies thereof on the agent for service designated under the preceding section or upon the Commissioner. At the time of service the plaintiff shall pay the Commissioner two ($2.00) dollars, taxable as cost in the action. Upon receiving such service the Commissioner shall promptly forward a copy thereof by registered mail to the person last so designated by the insurer to receive the same.
(2) Process served upon the Commissioner and copy thereof forwarded as in this section provided, shall constitute service thereof upon the insurer so long as it shall have any obligations or liabilities outstanding, although such company may have withdrawn, have been excluded from, or have ceased to do business in this State.
56-1205. Service of process; nonresident cooperative or assessment life insurers.-In suits upon any certificate or policy issued by a nonresident religious or mutual aid society, cooperative or assessment life insurance company or society, service upon the chief executive officer, or the person acting officially for or as such chief executive officer of a local lodge, shall be sufficient service upon such society or company. For this purpose, officers of local lodges are hereby declared to be agents of such nonresident societies or companies, and such local lodges are hereby declared to be agencies of said companies or societies.
56-1206. Liability of insurer for damages and attorney's fees.-In the event of a loss w hich is cover ed by a policy of insurance a nd the r efusal of the insurer t o pay the sam e within 60 days after a demand has been made by the holder of the policy and a fin ding has been ma de that such refusal was in ba d faith, the insurer shall be liable to pay su ch holder, in a dd iti on t o the loss, not more than 25 per cent. of the lia bility of th e insurer f or the loss and all r easo nabl e attorney's fees for the pr osecution of the case a ga inst th e insm:er. The amount of su ch reasonabl e

21 3

FEES AND TAXES

56-1301

attorney's fees shall be determined by the trial jury and shall be included in any judgment which is rendered in such action: Provided, however, such attorney's fees shall be fixed on the basis of competent expert evidence as to the reasonable value of such services, based on the time spent and legal and factual issues involved, in accordance with prevailing fees in the locality where such suit is pending : Provided, further, that the trial court shall have the discretion, if it finds such jury verdict fixing attorney's fees to be greatly excessive or inadequate, to review and amend such portion of the verdict fixing attorney's fees without the necessity of disapproving the entire verdict. The limitations contained in this section in reference to the amount of attorney's fees are not controlling as to the fees which may be agreed upon by the plaintiff and his attorney for the services of such attorney in the action against the insurer.

CHAPTER 56-13

FEES AND TAXES.

56-1301. Filing, license and miscellaneous fees.

56-1302. Retaliatory provision.

56-1303. Insurance premiums; inclusion of annuity con-

siderations; exemptions.

56-1304. Time of payment of tax on insurance premiums;

returns.

56-1305. Reduction of tax.

56-1306. Deduction of retaliatory tax paid to another

state.

56-1307. [Reserved].

56-1308. [Reserved]. 56-1309. License fees~

56-1310. Powers of municipal corporations and other

political subdivisions to tax life insurance com-

panies; deduction of taxes paid municipal cor-

porations from State tax. _

_

56-1311. Execution to issue against delinquents.

56-1301. Filing, license and miscellaneou,s fees.-(1)

56-1 301

FEES AND TAXES

214

The Commissioner shall collect in advance, and persons so served shall pay in advance to the Commissioner, fees, licenses and miscellaneous charges as follows:
(a) Certificate of authority:
(i) Filing application for original certificate of authority, including the filing with the Commissioner of all documents incidental thereto -- ------ ----- -------$ 25.00
(ii) Issuance of original certificate of authority ------ ---- -- --- --- ---- -- -- ----- ----- ---- ------$ 20.00
(iii) Reinstatement fee (not applicable to annual renewals in ordinary course) .. $ 50.00
(b) Charter documents:
(i) For filing with the Commissioner of other charter documents not filed in connection with application for certificate of authority - - - - - - ~- - --- - - --- -- - - -- -- --- - - -- $ 10.00
(ii) Filing with the Commissioner amendment to charter documents, or to bylaws ---- -------- --- ------ -- ---- ----- ------- --- ----- --- --- -$ 5.00
(c) License for the following: Property, casualty, surety, life, accident and sickness agents for any one class or combination of all classes___________ _______ ____ _____ ___ __ _________ ______ ___ ____$ 15.00
(d) License for the following: Solicitors, brokers, counselors and adjusters ----------- ---------- -$ 15.00
(e) Examination for the following: Property, casualty, surety and allied lines for any one class or combination of all classes --- -- --- $ 10.00
(f) Examination for the following: Life, accident and sickness for any one class or combination of all classes ----- --- --- ------- ------------ ----$ 10.00
(g) Examination for the following: Solicitors, brokers, counselors and adjusters --- ---- -------$ 10.00

215

FEES AND TAXES

56-1305

(h) Re-examination of the above categories, each ---------- -- --- -- --- -- ------ -- ---- ---- -- --------- ------- ---- --$ 5.00
(i) Each vending machine licensed each year, under section 56-815b. -- ---- ---- --- -- -- ---- ------ -$ 5.00
(j) Surplus line broker, annual license fee as provided in section 56-618 ___ ___ __ ___ ___ _-- --- -----$300.00
(2) The Commissioner shall promptly pay all fees and licenses and taxes collected under this section into the State Treasury in accordance with section 56-228. The Commissioner, however, is authorized to refund amounts which are illegally or erroneously collected, and such payments to the Treasury shall be less the amount of such refunds.
56-1302. Retaliatory provision.-The same fees or taxes imposed upon Georgia agents, brokers, adjusters or any other representatives of insurers, as listed in this Chapter, for the privilege of doing business in another state shall be imposed upon agents, brokers, adjusters or any other representatives of insurers of such other state doing business in this State, in accordance with the provisions of section 56-321.
56-1303. Insurance premiums: Inclusion of annuity considerations: Exemptions.-All foreign, alien, and domestic insurance companies doing business in this State shall pay a tax of two and one-fourth (21;4 % ) percent upon the gross direct premiums received by them on and after July 1, 1955, upon persons, property or risks in Georgia, from January 1st to December 31st, both inclusive, of each year without regard to business ceded to or assumed from other companies, nor shall any deductions be allowed for premium abatements of any kind or character or for reinsurance or for cash surrender values paid, or for losses or expenses of any kind, said tax being imposed upon gross premiums received from direct writings without any deductions whatever except for premiums returned on change of rate or cancelled policies; Provided, however, deductions may be made for return pre-

-

56-1 304

FEES AND TAXES

216

miums or assessments, including all policy dividends, refunds, or other similar returns paid or credited to policyholders and not re-applied as premium for additional or extended life insurance. The term "gross direct premiums" shall include annuity considerations.
56-1304. Time of payment of tax on insurance premiums; retums.-The annual premium taxes required herein shall be paid to the Commissioner annually on or before March 1st following the close of the preceding calendar year upon all such premiums collected during that calendar year. At the same time each such insurance company shall file with the Commissioner a return on a form prescribed by the Commissioner.
56-1305. Reduction of tax.-When~ver any insurance company doing business in this State shall make it appear to the Commissioner, by evidence satisfactory to him, that one-fourth (1,4) of its total assets, as of December 31st of any taxable year, exclusive of direct obligations of the United States, consists of or is invested in any or all of the following classes of property, to wit:
(1) General obligation bonds of the State of Georgia or of any political subdivision of the State of Georgia;
(2) Revenue bonds or revenue anticipation certificates of any county, municipality or political subdivision of the State of Georgia;
(3) Revenue bonds or revenue anticipation certificates of any authority or public corporation created by or pursuant to the laws of the State of Georgia;
(4) Real estate situated in and subject to taxation by the State of Georgia or its political subdivisions;
(5) Tangible personal property located in Georgia and subject to taxation by the State of Georgia or its political subdivision;

217 >

FEES AND TAXES

56-1 309

(6) Loans secured by liens on real estate situated in the State of Georgia;
(7) Policy loans on insurance policies issued by any such company on lives of persons resident in Georgia;
(8) Intangible property having a taxable situs in this State; or
(9) Shares in Georgia corporations in which such insurance companies are authorized to invest under the laws of the State of Georgia;
then the gross premium tax levied by section 56-1303 shall be abated or reduced to one and one-quarter (11A,%) percent upon the gross premium of any such company subject to taxation by said section, and if the amount so invested by any such company shall be as much as threefourths (%) of its total assets, exclusive of direct obligations of the United States, then the said premium tax shall be abated or reduced to one-half of one. percent (.5%) upon the gross premiums of such company subject to taxation by said section.
56-1306. Deduction of retaliatory tax paid to another state.-Any insurance company, corporation or association domiciled in the State of Georgia, and issuing insurance policies on fire, lightning, extended coverage and windstorm covering property within this State, may deduct any retaliatory tax actually paid to another state from their Georgia taxes due for the tax year for which such retaliatory tax was paid and only at the time when such Georgia taxes for that year are paid and upon furnishing proof of payment of such retaliatory tax to the Commissioner.
56-1307. [Reserved].
56-1308. [Reserved].
56-1309. License fees.-(1) Each and every insurance company, domestic, foreign, or alien, carrying on an in-

56-1310

FEES AND TAX

218

surance business in Georgia shall pay to the Commissioner, annually in advance, on or before July 1st, a license fee in the sum of three hundred ($300.00) dollars which payment shall be in lieu of all other license fees of said companies. Foreign companies entering the State and domestic companies beginning business at any time during the license year as herein fixed, shall pay said license fee in full for the remaining portion of that license year: Provided, that local fire insurance companies known as Farmers' Mutual Fire Insurance Companies as defined in Chapter 56-20, shall pay an annual fee of twenty-five ($25.00) dollars, and Fraternal Benefit Societies shall pay the fees as provided for in Chapter 56-19.
(2) The license fees provided for in section 56-1301 are expressly imposed on and shall be the obligation of the licensees.
56-1310. Powers of municipal corporations and other political subdivisions to tax life insurance companies; deduction of taxes paid municipal corporations from State tax.- (1) Except as otherwise provided in this section, the State of Georgia hereby preempts the field of imposing taxes, except taxes on real property and tangible personal property taxed ad valorem, upon life insurance companies, their agents and other representatives, including, but not limited to, excise, privilege, franchise, income, license, permit, registration and similar taxes and fees measured by premiums, income or volume of transactions, and no county or unincorporated area thereof, city, municipality, district, school district, or other political subdivision or agency of this State shall impose, levy, charge or require the same, except as herein provided in subsection (2) of this section.
(2) Municipal corporations are authorized, in conformity with the requirements of their charters, to impose and collect the following license fees or taxes upon life insurance companies for the privilege of engaging in the business of insurance within said municipal corporation:

219 --- -

...

FEES AND TAX

56-1310

(a) An annual license fee on each life insurance com-

pany doing business within the municipal corporate limits

not to exceed the following schedule:

Population of municipal corporation

Amount

Under 1000

$ 15

1,000- 1,999

25

2,000- 4,999

40

5,000- 9,999

50

10,000-24,999

75

25,000-49,999

100

50,000 and over

150

and an additional annual license fee in the same amount

for each separate business location in excess of one oper-

ated and maintained by such company within the same

municipality. Also, there may be imposed an additional

annual license fee of $10, or 35 per cent. of the schedule

set forth above, whichever amount is greater, on each life

insurance company for each separate business location,

not otherwise subject to a license fee hereunder, operated

and maintained by a business organization which is

engaged in the business of lending money or transacting

sales involving term financing and which in connection

with such loans or sales involving term financing, <;>ffers,

solicits or takes applications for insurance through a

licensed agent of such insurance company for life insur-

ance.

(b) A tax on each life insurance company doing business within the municipal corporate limits which shall be based solely upon such gross direct premiums, as defined in section 56-1303, as are received during the preceding calendar year from policies insuring persons residing within the corporate limits of such municipal corporation: Provided, however, that the rate of such tax may not exceed one per cent. of such premiums.
(c) During the period prior to January 1, 1968, any municipal corporation, which -during the year 1963 imposed a tax on all premiums of life insurance companies, both first year and renewal, at a rate in excess of one per cent., may continue to impose a tax on such

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FEES AND TAX

220

premiums at a rate greater than one per cent., notwithstanding the limitation of subsection (b) of this section: Provided, however, that the rate of such tax shall not exceed such rate which was in effect in such municipal corporation during 1963 reduced annually, beginning January 1, 1965, by one-quarter of the difference between such 1963 rate and one per cent.
(d) Within 45 days after either the date of their enactment or January 1, 1965, whichever is later, each municipal corporation shall file with the Insurance Commissioner of the State of Georgia a certified copy of the pertinent parts of all ordinances and amendments thereto which impose any such license fee or tax, and such filing shall be a condition to the validity and enforceability of such an ordinance. Each municipal corporation desiring to impose a tax under subsection (c) of this section shall within the same period also file a certified copy of its ordinance which imposed a tax on all premiums of life insurance companies during the year 1963.
(3) Life insurance companies may, after January 1, 1966, deduct from premium taxes otherwise payable to this State under section 56-1303, in addition to all credits and abatements allowed by law, the license fees and taxes imposed pursuant to this section and paid to any municipal corporation during the preceding calendar year, except that during the calendar year 1966 the amount of such deduction shall be limited to 50 per cent. of such license fees and taxes.
(4) A "life insurance company'' shall, for the purpose of this section, be construed to mean a company which is authorized to transact only the class of insurance designated in section 56-305 as class (1).
(5) Life insurance agencies which are company maintained and operated may not be separately taxed and licensed by municipal corporations except under the provisions of this section, but nothing herein contained shall prevent municipal corporations from separately im-

221

REHABILITATION OF INS URERS

56-1311

-----------------

- - - - -- -------------------

posing and collecting business licenses from ind ependent insurance agencies or brokers doing a life insurance business not otherwise taxed hereunder; but no such license may be imposed on such independent agents or brokers which is measured by th e premiums of life insuranc e companies.

56-1311. Execution to issue against delinquents.-In addition to other remedies provided for in this Title for the collection of fees and taxes, the Commissioner is authorized to issue executions against delinquents who have failed to pay such fees and taxes when due.

CHAPTER 56-14.

REHABILITATION AND LIQUIDATION OF INSURERS.

56-1401. Definition of terms used in Chapter. 56-1402. Conduct of delinquency proceedings against in-
surers domiciled in this State. 56-1403. Conduct of delinquency proceedings against in-
surers not domiciled in this State. 56-1404. Filing and proving of claims of nonresidents
against delinquent insurers domiciled in this State. 56-1405. Filing and proving of claims of residents against delinquent insurers domiciled in reciprocal states. 56-1406. Priority of preferred claims. 56-1407. Priority of special deposit claims. 56-1408. Priority of secured Claims. 56-1409. Attachment and garnishment of assets. 56-1410. Right of domiciliary receiver to sue in this State. 56-1411. Uniform Insurers Liquidation Act. 56-1412. Jurisdiction of delinquency proceedings; venue; change of venue; exclusiveness of remedy; appeal. 56-1413. Commencement of delinquency proceedings. 56-1414. Injunctions. 56-1415. Grounds for rehabilitation; domestic insurers.

56-1401

REHABILITATION OF INSURERS

222

56-1416. Grounds for liquidation. 56-1417. Grounds for conservation; foreign insurers. 56-1418. Grounds for conservation; alien insurers. 56-1419. Grounds for ancillary liquidation; foreign in-
surers. 56-1420. Order of rehabilitation; termination. 56-1421. Order of liquidation; domestic insurers. 56-1422. Order of liquidation; alien insurers. 56-1423. Order of conservation or ancillary liquidation
of foreign or alien insurers. 56-1424. Authority of Commissioner as liquidator or con-
servator. 56-1425. Deposit of monies collected. 56-1426. Date rights fixed on liquidation. 56-1427. Voidable transfers. 56-1428. Priority of claims. 56-1429. Offsets. 56-1430. Allowance of certain claims. 56-1431. Time to file claims. 56-1432. Report and petition for assessment. 56-1433. Order and levy of assessment. G6-1434. Assessment prima facie correct; notice; pay-
ment; proceedings to collect.
56-1401. Definitions of terms used in Chapter.-For
the purpose of this Chapter:
(1) "Impairment" or "insolvency". The capital of a stock insurer or the surplus of a mutual or reciprocal insurer, shall be deemed to be impaired and the insurer shall be deemed to be insolvent, when such insurer is not possessed of assets at least equal to all liabilities and required reserve together with its total issued and outstanding capital stock if a stock insurer, or the minimum surplus if a mutual or reciprocal insurer, required by this Title to be maintained for the kind or kinds of insurance it is then authorized to transact;
(2) "Insurer" means any person, firm, corporation, association, or aggregation of persons doing an insurance business and subject to the insurance supervisory authority of, or to liquidation, rehabilitation, reorganization, or

223

REHABILITATION OF INSURERS

56-1 401

conservation by, the Commissioner of this State, or the equivalent insurance supervisory official of another state;
(3) "Delinquency proceedings" means any proceeding commenced against an insurer for the purpose of liquidating, rehabilitating, reorganizing, or conserving such insurer;
(4) "State" means any state of the United States, and also the District of Columbia, and Puerto Rico;
(5) "Foreign country" means territory not in any state;
(6) "Domiciliary state" means the state in which an insurer is incorporated or organized, or, in the case of an insurer incorporated or organized in a foreign country, the state in which such insurer, having become authorized to do business in such state, has, at the commencement of delinquency proceedings, the largest amount of its assets held in trust and assets held on deposit for the benefit of its policyholders or policyholders and creditors in the United States; and any such insurer is deemed to be domiciled in such state;
(7) "Ancillary state" means any state other than a domiciliary state:
(8) "Reciprocal state" means any state other than this State in which in substance and effect the provisions of this Chapter are in force, including the provisions requiring that the Commissioner or equivalent insurance supervisory official be the receiver of a delinquent insurer;
(9) "General assets" means all property, real, personal, or otherwise, not specifically mortgaged, pledged, deposited, or otherwise encumbered for the security or benefit of specified persons or a limited class or classes of persons, and as to such specifically encumbered property the term includes all such property or its proceeds in excess of the amount necessary to discharge the sum or sums secured thereby. Assets held in trust and assets held on deposit for the security or benefit of all policyholders, or all policyholders and creditors in the United States, shall be deemed general assets;

56-1403

REHABILITATION OF INSURERS

224

(10) "Preferred claim" means any claim with respect to which the law of a state or of the United States accords priority of payment from the general assets of the insurer;
(11) "Special deposit claim" means any claim secured by a deposit made pursuant to statute for the security or benefit of a limited class or classes of persons, but not including any general assets;
(12) "Secured claim" means any claim secured by mortgage, trust, deed, pledge, deposit as security, escrow, or otherwise, but not including special deposit claims or claims against general assets. The term also includes claims which more than four months prior to the commencement of delinquency proceedings in the state of the insurer's domicile have become liens upon specific assets by reason of judicial process;
( 13) "Receiver" means receiver, liquidator, rehabilitator, or conservator as the context may require.
56-1402. Conduct of delinquency proceedings against insurers domiciled in this State.-(1) Whenever under the laws of this State a receiver is to be appointed in delinquency proceedings for an insurer domiciled in this State, the court shall appoint the Commissioner as such receiver. The court shall direct the receiver forthwith to take possession of the assets of the insurer and to administer the same under the orders of the court.
(2) The domiciliary receiver and his successors in office shall be vested by operation of law with the title to all the property, contracts, and rights of action, and all of the books and records of the insurer wherever located as of the date of entry of the order directing possession to be taken, and he shall have the right to recover the same and reduce the same to possession; except that ancillary receivers in reciprocal states shall have, as to assets located in their respective states, the rights and powers which are hereinafter prescribed for ancillary receivers appointed in this State as to assets located in this State. The filing or recording of the order directing possession to be taken, or a certified copy thereof, in the office where instruments affecting title to property are required to be filed or re-

225

REHABILIT ATION OF INS U RE RS

56-1403

corded shall impart the same notice as would be imparted by a deed, bill of sale, or other evidence of title duly filed: or recorded. The domiciliary receiver shall be responsible on his official bond for the proper administration of all assets coming into his possession or control. The court may at any time require an additional bond from him or his deputies if deemed desirable for the protection Of the assets.
(3) Upon taking possession of the assets of a delinquent insurer the domiciliary receiver shall, subject to the direction of the court, immediately proceed to conduct the business of the insurer or to take such steps as are authorized by the laws of this State for the purpose of liquidating, rehabilitating, reorganizing, or conserving the affairs of the insurer. In connection with delinquency proceedings he may appoint one or more special deputy commissioners to act for him, and may employ such counsel, clerks, and assistants as he deems necessary. The compensation of the special deputies, counsel, clerks, or assistants, and all expenses of taking possession of the delinquent insurer and of conducting the delinquency proceedings shall be fixed by the receiver, subject to the approval of the court, and shall be paid out of the funds or assets of the insurer. Within the limits of the duties imposed upon them special deputies shall possess all the powers given to, and, in the exercise of those powers, shall be subject to all of the duties imposed upon the receiver with respect to delinquency proceedings.
56-1403. Conduct of delinquency proceedings against insurers not domiciled in this State.-(1) Whenever under the laws of this State an ancillary receiver is to be appointed in delinquency proceedings for an insurer not domiciled in this State, the court shall appoint the Commissioner as ancillary receiver. The Commissioner shall file a petition requesting the appointment (a) if he finds that there are sufficient assets of such insurer located in this State to justify the appointment of an ancillary receiver, or (b) if ten (10) or more persons resident in this State having claims against such insurer file a petition with the Commissioner requesting the appointment of such ancillary receiver.

56-1404

REHABILITATION OF I N S URERS

226

(2) If the Commissioner fails to file a petition within thirty (30) days after the appointment of a receiver for such insurer in its domiciliary state, any person having a claim insured against by said insurer may file a petition in the Superior Court of Fulton County for the appointment of the Commissioner as ancillary receiver of the property of such foreign insurer.

(3) The domiciliary receiver of an insurer domiciled in a reciprocal state, shall be vested by operation of law with the title to all of the property, contracts, and rights of action, and all of the books and records of the insurer located in this State, and he shall have the immediate right to recover balances due from local agents and to obtain possession of any books and records of the insurer found in this State. He shall also be entitled to recover the other assets of the insurer located in this State except that upon the appointment of an ancillary receiver in this State, the ancillary receiver shall during the ancillary receivership proceedings have the sole right to recover such other assets. The ancillary receiver shall, as soon as practicable, liquidate from their respective securities those special deposit claims and secured claims which are proved and allowed in the ancillary proceedings in this State, and shall pay the necessary expenses of the proceedings. All remaining assets he shall promptly transfer to the domiciliary receiver. Subject to the foregoing provisions the ancillary receiver and his deputies shall have the same powers and be subject to the same duties with respect to the administration of such assets as a receiver of an insurer domiciled in this State.

56-1404. Filing and proving of claims of nonresidents
against delinquent insurers domiciled in this State.-(I)
In a delinquency proceeding begun in this State against an insurer domiciled in this State, claimants residing in reciprocal states may file claims either with the ancillary receivers, if any, in their respective states, or with the domiciliary receiver. All such claims must be filed on or before the last date fixed for the filing of claims in the domiciliary delinquency proceedings.

227

REHABILITATION OF JNSURERS

56-1 405

(2) Controverted claims belonging to claimants residing in reciprocal states may either be proved in this State as provided by law, or, if ancillary proceedings have been commenced in such reciprocal states, may be proved in those proceedings. In the event a claimant elects t<h:prove his claim in ancillary proceedings, if notice of the claim and opportunity to appear and be heard is afforded the domiciliary receiver of this State as provided in section 56-1405 with respect to ancillary proceedings in this State, the final allowance of such claim by the courts in the ancillary state shall be accepted in this State as conclusive as to its amount, and shall be accepted as conclusive as to its priority, if any, against special deposits or other security located within the ancillary state.
56-1405. Filing and proving of claims of residents against delinquent insurers domiciled in reciprocal states. -(1) In a delinquency proceeding in a reciprocal state against an insurer domiciled in that state, claimants against such insurer who reside within this State.may file claims either with the ancillary receiver, if any, appointed in this State, or with the domiciliary receiver. All such claims must be filed on or before the last date fixed for the filing of claims in the domiciliary delinquency proceedings.
(2) Controverted claims belonging to claimants residing in this State may either be proved in the domiciliary state as provided by the law of that state, or, if ancillary proceedings have been commenced in this State, be proved in those proceedings. In the event that any such claimant elects to prove his claim in this State, he shall file his claim with the ancillary receiver in the manner provided by the law of this State for the proving of claims against insurers domiciled in this State, and he shall give notice in writing to the receiver in the domiciliary state, either by registered mail or by personal service at least forty (40) days prior to the date set for hearing. The notice shall contain a concise statement of the amount of the claim, the facts on which the claim is based, and the priorities asserted, if any. If the domiciliary receiver, within thirty (30) days after the giving of such notice, shall give

56-1406

REHABILITATION OF INSURERS

228

notice in writing to the ancillary receiver and to the claimant, either by registered mail or by personal service, of his intention to contest such claim, he shall be entitled to appear or to be represented in any proceeding in this State involving the adjudication of the claim. The final allowance of the claim by the courts of this State shall be accepted as conclusive -as to its amount, and shall also be accepted as conclusive as to its priority, if any, against special deposits or other security located within this State.
56-1406. Priority of preferred claims.-(1) In a delinquency proceeding against an insurer domiciled in this State, claims owing to residents of ancillary states shall be preferred claims if like claims are preferred under the laws of this State. All such claims whether owing to residents or nonresidents shall be given equal priority of payment from general assets regardless of where such assets are located.
(2) In a delinquency proceeding against an insurer domiciled in a reciprocal state, claims owing to residents of this State shall be preferred if like claims are preferred by the laws of that state.
56-1407. Priority of special deposit claims.-The owners of special deposit claims against an insurer for which a receiver is appointed in this or any other State shall be given priority against their several special deposits in accordance with the provisions of the statutes governing the creation and maintenance of such deposits. If there is a deficiency in any such deposit so that the claims secured thereby are not fully discharged therefrom, the claimant may share in the general assets, but such sharing shall be deferred until general creditors and also claimants against other special deposits who have received smaller percentages from their respective special deposits, have been paid percentages of their claims equal to the percentage paid from the special deposit.
56-1408. Priority of secured claims.-The owner of a secured claim against an insurer for which a receiver

229

REHABILITATION OF INSURERS

56-1411

has been appointed in this or any other State may surrender his security and file his claim as a general creditor, or the claim may be discharged by resort to the security, in which case the deficiency, if any, shall be treated as a claim against the general assets of the insurer on the same basis as claims of unsecured creditors. If the amount of the deficiency has been adjudicated in ancillary proceedings as provided in this Chapter, or if it has been adjudicated by a court of competent jurisdiction in proceedings in which the domiciliary receiver has had notice and opportunity to be heard, such amount shall be conclusive; otherwise the amount shall be determined in the delinquency proceeding in the domiciliary state.
56~1409. Attachment and garnishment of assets.-
During the pendency of deliquency proceedings in this or any reciprocal state no action or proceeding in the nature of an attachment, garnishment, or execution shall be commenced or maintained in the courts of this State against the delinquent insurer or its assets. Any lien obtained by any such action or proceeding within four months prior to the commencement of any such delinquency proceeding or at any time thereafter shall be void as against any rights arising in such delinquency proceeding.

56-1410. Right of domiciliary receiver to sue in this State.-The domiciliary receiver of an insurer domiciled in a reciprocal state may sue in this State to recover any assets of such insurer to which he may be entitled under the laws of this State.
56-1411. Uniform Insurers Liquidation Act.-(1) Subsections (2) through (13), inclusive, of section 56-1401 through section 56-1410, both inclusive of this Chapter constitute and may be referred to as the Uniform Insurers Liquidation Act.

(2) If any provision of this Act or the application thereof to any person or circumstances is held invalid, such invalidity shall not affect other provisions or applications of the Act which can be given effect without the

56-1 4 12

REHABILITATION OF INSURERS

230

invalid provision or application, and to this end the provisions of this Act are declared to be severable.
(3) This Act shall be so interpreted and construed as to effectuate its general purpose to make uniform the law of those states that enact it. To the extent that its provisions, when applicable, conflict with other laws, or other portions of this Chapter, the provisions of this Act shall control.
56-1412. Jurisdiction of delinquency proceedings; venue; change of venue; exclusiveness of remedy; ap-
peal.-(1) The superior court shall have original jurisdiction of delinquency proceedings under this Chapter and any court with jurisdiction is authorized to make all . necessary or proper orders to carry out the purposes of this Chapter.
(2) The venue of delinquency proceedings against a domestic insurer shall be in the county of the insurer's principal place of business. The venue of such proceedings against foreign and alien insurer shall be in the Superior Court of Fulton County.
(3) At any time after the commencement of a proceeding under this Chapter the Commissioner may apply to the court for an order changing the venue of, and removing the proceeding to, Fulton County or to any other county of this State in which he deems that such proceeding may be most economically and efficiently conducted.
(4) Delinquency proceedings pursuant to this Chapter shall constitute the sole and exclusive method of liquidating, rehabilitating, reorganizing or conserving an insurer, and no court shall entertain a petition for the commencement of such proceedings unless the same has been filed in the name of the State on the relation of the Commissioner.
(5) An appeal shall lie to the Supreme Court from an order granting or refusing rehabilitation, liquidation, or conservation, and from every order in delinquency

231

REHABILITATION OF INSURERS

56-1415

proceedings having the character of a final order as to the particular portion of the proceedings embraced therein.
56-1413. Commencement of delinquency proceedings. -The Commissioner shall commence any such proceedings by application to the court for an order directing the insurer to show cause why the Commissioner should not have the relief prayed for. On the return of such order to show cause, and after a full hearing, the court shall either deny the application or grant the application, together with such other relief as the nature of the case and the interests of the policyholders, creditors, stockholders, members, subscribers or the public may require.
56-1414. lnjunctions.-{1) Upon application by the Commissioner for such an order to show cause, or at any time thereafter, the court may without notice issue an injunction restraining the insurer, its officers, directors, stockholders, members, subscribers, agents and all other persons from the transaction of its business .or the waste or disposition of its property until the further order of the court.
(2) The court may at any time during a proceeding under this Chapter issue such other injunctions or orders as may be deemed necessary to prevent interference with the Commissioner or the proceeding or waste of the assets of the insurer, or the commencement or prosecution of any actions, or the obtaining of preferences, judgments, attachments or other liens, or the making of any levy against the insurer or against its assets or any part thereof.
(3) Notwithstanding any other provisiOn of law, no bond shall be required of the Commissioner as a prerequisite for the issuance of any injunction or restraining order pursuant to this section.
56-1415. Grounds for rehabilitation; domestic insurers.-The Commissioner may apply to the court for an

56-1415

REHABILITATION OF I NS URERS

232

order appointing him in his official capacity and his successors in office as receiver of and directing him to rehabilitate a domestic insurer upon one or more of the following grounds. That the insurer:
(1) Is impaired or insolvent;
(2) Has refused to submit any of its books, records, accounts or affairs to reasonable examination by the Commissioner;
(3) Has concealed or removed records or assets;
(4) Has failed to comply with an order of the Commissioner to make good an impairment of capital or surplus or both ;
(5) Has transferred or attempted to transfer substantially its entire property or business, or has entered into any transaction the effect of which is to merge substantially its entire property or business in that of any other insurer without having first obtained the written approval of the Commissioner;
(6) Has wilfully violated its charter or any law of this State;
(7) Has an officer, director or manager who has refused to be examined under oath concerning its affairs, for which purposes the Commissioner is hereby authorized to conduct and to enforce by all appropriate and available means any such examination under oath in any other state or territory of the United States, in which any such officer, director or manager may then presently be, to the full extent permitted by the laws of such other state or territory, this special authorization considered;

(8) Has been or is the subject of an application for the appointment of a receiver, trustee, custodian or sequestrator of the insurer or its property otherwise than pursuant to the provisions of this Title, but only if such appointment has been made or is imminent and its

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effect is or would be to oust the courts of this State of jurisdiction hereunder;
(9) Has consented to such an order through a majority of its directors, stockholders, members or subscribers;
(10) Has failed to pay final judgment rendered against it in this State upon any insurance contract issued or assumed by it, within thirty (30) days after the judgment became final or within thirty (30) days after the time for taking an appeal has expired, or within thirty (30) days after dismissal of an appeal before final termination, whichever date is the later;
(11) Is found to be in such condition that its further transaction of business would be hazardous to its policyholders, or to its creditors, or to the public.
56-1416. Grounds for liquidation.-The Commissioner may apply to the court for an order appointing him as receiver (if his appointment as receiver shall not be then in effect) and directing him to liquidate the business of a domestic insurer or of the United States branch of an alien insurer having trusteed assets in this State, regardless of whether or not there has been a prior order directing him to rehabilitate such insurer, upon any of the grounds specified in section 56-1415, or if such insurer:
(1) Has ceased transacting business for a period of one year; or
(2) Is an insolvent insurer and has commenced voluntary liquidation or dissolution, or attempts to commence or prosecute any action or proceeding to liquidate its business or affairs, or to dissolve its corporate charter, or to procure the appointment of a receiver, trustee, custodian or sequestrator under any law except this Title.
56-1417. Grounds for conservation; foreign insurers. -The Commissioner may apply to the court for an order

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appointing him as receiver or ancillary receiver, and directing him to conserve the assets within this State, of a foreign insurer upon any of the following grounds:
(1) Upon any of the grounds specified in sections 56-1415 or 56-1416; or
(2) Upon the ground that its property has been sequestrated in its domiciliary sovereignty or in any other sovereignty.
56-1418. Grounds for conservation; alien insurers.The Commissioner may apply to the court for an order appointing him as receiver or ancillary receiver, and directing him to conserve the assets within this State, of any alien insurer upon any of the following grounds:
( 1) Upon any of the grounds specified in sections 56-1415 or 56-1416;
(2) Upon the ground that the insurer has failed to comply, within the time designated by the Commissioner, with an order made by him to make good an impairment of its trusteed funds; or
(3) Upon the ground that the property of the insurer has been sequestrated in its domiciliary sovereignty or elsewhere.
56-1419. Grounds for ancillary liquidation; foreign insurers.-The Commissioner may apply to the court for an order appointing him as ancillary receiver of and directing him to liquidate the business of a foreign insurer having assets, business or claims in this State upon the appointment in the domiciliary state of such insurer of a receiver, liquidator, conservator, rehabilitator or other officer by whatever name called for the purpose of liquidating the business of such insurer. If the Commissioner shall fail to apply for his appointment as ancillary receiver within thirty (30) days after the appointment in the domiciliary state of such insurer of a receiver, liquidator, conservator, rehabilitator or other officer by

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whatever name called for the purpose of liquidating the business of such insurer, then any person having a claim against such foreign insurer for a loss insured against may apply to the Superior Court of Fulton County for the appointment of the Commissioner as ancillary receiver of the assets of such foreign insurer in this State.

56-1420. Order of rehabilitation; termination.-(!) An order to rehabilitate a domestic insurer shall direct the Commissioner forthwith to take possession of the property of the insurer and to conduct the business thereof, and to take such steps toward removal of the causes and conditions which have made rehabilitation necessary as the court may direct.
(2) If at any time the Commissioner deems that further efforts to rehabilitate the insurer would be useless, he may apply to the court for an order of liquidation.
(3) The Commissioner, or any interested person upon due notice to the Commissioner, at any time may apply to the court for an order terminating the rehabilitation proceedings and permitting the insurer to resume possession of its property and the conduct of its business, but no such order shall be made or entered except when, after a hearing, the court has determined that the purposes of the proceeding have been fully accomplished.

56-1421. Order of liquidation; domestic insurers.(!) An order to liquidate the business of a domestic insurer shall direct the Commissioner forthwith to take possession of the property of the insurer, to liquidate its business, to deal with the insurer's property and business in his own name as Commissioner or in the name of the insurer, as the court may direct, and to give notice to all creditors who may have claims against the insurer to present such claims.

(2) The Commissioner may apply for and secure an order dissolving the corporate existence of a domestic insurer upon his application for an order of liquidation

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of such insurer or at any time after such order has been granted.
56-1422. Order of liquidation; alien insurers.-An order to liquidate the business of a United States branch of an alien insurer having trusteed assets in this State shall be in the same terms as those prescribed for domestic insurers, save and except only that the assets of the business of such United States branch shall be the only assets included therein.
56-1423. Order of conservation or ancillary liquidation of foreign or alien insurers.-(1) An order to conserve the assets of a foreign or alien insurer shall require the Commissioner forthwith to take possession of the property of the insurer within this State and to conserve it, subject to the further direction of the court.
(2) An order to liquidate the assets in this State of a foreign insurer shall require the Commissioner forthwith to take possession of the property of the insurer within this State and to liquidate it subject to the orders of the court and with due regard to the rights and powers of the domiciliary receiver, as provided in this Chapter.
56-1424. Authority of Commissioner as liquidator or conservator.-Upon taking possession of the property and business of any insurer in any proceeding under this Chapter, the Commissioner, exclusively and except as otherwise expressly provided by this Chapter, either as conservator or liquidator:
(1) Shall have authority to collect all monies due such insurer, and to do such other acts as are necessary or expedient to collect, conserve or protect its assets, property and business, and to carry on and conduct the business and affairs of any such insurer or so much thereof as to him may seem appropriate;
(2) Shall collect all debts due and claims belonging to said insurer, and shall have the authority to sell, compound, compromise or assign, for the purpose of col-

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lection upon such terms and conditions as he deems best, any bad or doubtful debts;
(3) Shall have authority to compound, compromise or in any other manner negotiate settlements of claims against such insurer upon such terms and conditions as he shall deem to be most advantageous to the estate of the insurer being administered or liquidated or otherwise delt with under this Chapter;
(4) Shall have authority without notice, to acquire, hypothecate, encumber, lease, improve, sell, transfer, abandon or otherwise dispose of or deal with, any real or personal property of any such insurer at its reasonable market value, or, in case other than acquisition, sale or transfer on the basis of reasonable market value, upon such terms and conditions as he may deem proper; Provided, however, that no transaction involving real or personal property shall be made where the market value of the property involved exceeds the sum of one thousand ($1,000) dollars without first obtaining permission of said court, and then only in accordance with such terms as said court may prescribe;
(5) Shall have authority to transfer to a trustee or trustees, under a voting trust agreement, the stock of an insurer heretofore or hereafter issued to him as conservator or as liquidator in connection with a rehabilitation or reinsurance agreement, or any other proceeding under this Chapter. Such voting trust agreement shall confer upon the trustee or trustees the right to vote or otherwise represent such stock, and shall not be irrevocable for a period of more than twenty-one (21) years;
. (6) May, for the purpose of executing and performing any of the powers and authority conferred upon him under this Chapter, in the name of the insurer affected by the proceeding or in his own name, prosecute and defend any and all suits and other legal proceedings, and execute, acknowledge and deliver any and all deeds, assignments, releases and other instruments necessary and proper to effectuate any sale of any real and per-

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sonal property or other transaction in connection with the administration, liquidation, or other disposition of the assets of the insurer affected by such proceeding; and any deed or other instrument executed pursuant to the authority hereby given shall be valid and effectual for all purposes as though the same had been executed by the insurer affected by any proceeding under this Chapter or by its officers pursuant to the direction of its governing board or authority. In cases where any real property sold by the Commissioner under this Chapter is located in a county other than the county wherein the proceeding is pending, the Commissioner shall cause a certified copy of the order of his appointment, or order authorizing or ratifying the sale, to be filed in the office of the clerk of the superior court of the county in which said property is located;
(7) Shall have authority to invest and reinvest, as provided in Chapter 56-10, in such manner as he may deem suitable for the best interests of the creditors of such insurer, such portions of the funds and assets of such insurer in his possession as do not exceed the amount of the reserves required by law to be maintained by such insurer as reserves for life insurance policies, annuity contracts, supplementary agreements incidental to life business and reserves for noncancellable disability policies, and which funds and assets are not immediately distributable to creditors; Provided, however, that no such investment or reinvestment shall be made which exceeds the sum of one thousand ($1,000) dollars without first obtaining permission of said court, and then only in accordance with such terms as said court may prescribe ;
(8) In order to preserve as far as possible the rights and interests of the policyholders of the company whose contracts were cancelled by the liquidation order and of such other creditors as may be possible, the Commissioner may solicit a contract or contracts whereby a solvent company or companies will agree to assume in whole, or in part, or upon a modified basis, the liabilities owing to said former policyholders or creditors. If, after a full hearing upon a petition filed by the Commis-

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sioner, the court shall find that the Commissioner endeavored to obtain the best contract for the benefit of said parties in interest, and if the said Commissioner shall report to the court that he is ready and willing to enter into a contract and submit a copy thereof to the court, the court shall examine the procedure and acts of the Commissioner, and if the court shall find that the best possible contract in the interests of said parties has been obtained and that it is best for the interests of said parties that said contract be entered into, the court shall by written order approve the acts of the Commissioner and authorize him to execute said contract.

The enumeration, in this section, of the duties, powers and authority of the Commissioner in proceedings under this Chapter shall not be construed as a limitation upon the Commissioner, nor shall it exclude in any manner his right to perform and to do such other acts not herein specifically enumerated, or otherwise provided for, which he may deem necessary or expedient for the accomplishment or in aid of the purpose of such proceedings.

56-1425. Deposit of monies collected.-The monies collected by the Commissioner in a proceeding under this Chapter shall be from time to time deposited in one or more State or national banks, savings banks or trust companies, which are authorized under the laws of this State to act as depositories of State funds and which have their deposits insured by the Federal Deposit Insurance Corporation, and in the case of the insolvency or voluntary or involuntary liquidation of any such depository which is an institution organized and supervised under the laws of this State, such deposits shall be entitled to priority of payment on an equality with any other priority given by the banking laws of this State. The Commissioner may in his discretion deposit such monies or any part thereof in a national bank or trust company, which is authorized under the laws of th!s State to act as a depository of State funds and which has its deposits insured by the Federal Deposit Insurance Corporation, as a trust fund.

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56-1426. Date rights fixed on liquidation.-The rights and liabilities of the insurer and of its creditors, policyholders, stockholders, members, subscribers and all other persons interested in its estate shall, unless otherwise directed by the court, be fixed as of the date on which the order directing the liquidation of the insurer is filed in the office of the clerk of the court which made the order, subject to the provisions of this Chapter with respect to the rights of claimants holding contingent claims.
56-1427. Voidable transfers.-(1) Any transfer of, or lien upon, the property of an insurer which is made or created within four months prior to the granting of an order to show cause under this Chapter with the intent of giving to any creditor a preference or of enabling him to obtain a greater percentage of his debt than any other creditor of the same class and which is accepted by such creditor having reasonable cause to believe that such preference will occur, shall be voidable.
(2) Every director, officer, employee, stockholder, member, subscriber and any other person acting on behalf of such insurer who shall be concerned in any such act or deed and every person receiving thereby any property of such insurer or the benefit thereof shall be personally liable therefor and shall be bound to account to the Commissioner.
(3) The Commissioner as receiver in any proceeding under this Chapter may avoid any transfer of or lien upon the property of an insurer which any creditor, stockholder, subscriber or member of such insurer might have avoided and may recover the property so transferred unless such person was a bona fide holder for value prior to the date of the entering of an order to show cause under this Chapter. Such property or its value may be recovered from anyone who has received it except a bona fide holder for value as herein specified.
56-1428. Priority of claims.-The following priority of claims in the d!stribution of assets is hereby established:

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(1) Claims for cost of administration and conservation of assets of the insurer;
(2) Claims under policies for losses incurred, including claims of third parties under liability policies;
(3) Claims for unearned premiums;
(4) Compensation actually owing to employees other than officers of an insurer, for services rendered within three months prior to the commencement of a proceeding against the insurer under this Chapter, but not exceeding five hundred ($500) dollars for each employee, shall be paid, and in the discretion of the Commissioner may be paid as soon as practicable after the proceeding has been commenced. Such priority shall be in lieu of any other similar priority which may be authorized by law as to wages or compensation of such employees;
(5) Claims of general creditors.
56-1429. Offsets.-(1) In all cases of mutual debts or mutual credits between the insurer and another person in connection with any action or proceeding under this Chapter, such credits and debts shall be set off and the balance only shall be allowed or paid, except as provided in subsection (2) below.
(2) No offset shall be allowed in favor of any such person where:
(a) The obligation of the insurer to such person would not at the date of the entry of any liquidation order or otherwise, as provided in section 56-1426, entitle him to share as a claimant in the assets of the insurer, or
(b) The obligation of the insurer to such person was purchased by or transferred to such person with a view of its being used as an offset, or
(c) The obligation of such person is to pay an assessment levied against the members of a mutual insurer, or

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against the subscribers of a reciprocal insurer, or is to pay a balance upon the subscription to the capital stock of a stock insurer.
56-1430. Allowance of certain claims.-(1) No contingent and unliquidated claim shall share in a distribution of the assets of an insurer which has been adjudicated to be insolvent by an order made pursuant to this Chapter, except that such claim shall be considered, if properly presented, and may be allowed to share where:
(a) Such claim becomes absolute against the insurer on or before the last day for filing claims against the assets of such insurer, or
(b) There is a surplus and the liquidation is thereafter conducted upon the basis that. such insurer is solvent.
(2) Where an insurer has been so adjudicated to be insolvent any person who has a c-ause of action against an insured of such insurer under a liability insurance policy issued by such insurer shall have the right to file a claim in the liquidation proceeding, regardless of the fact that such claim may be contingent, and such claim may be allowed :
(a) If it may be reasonably inferred from the proof presented upon such claim that such person would be able to obtain a judgment upon such cause of action against such insured, and
(b) If such person shall furnish suitable proof, unless the court for good cause shown shall otherwise direct, that no further valid claim against such insurer arising out of his cause of action other than those already presented can be made, and
(c) If the total liability of such insurer to all claimants arising out of the same act as of its insured shall be no greater than its maximum liability would be were it not in liquidation.

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(3) No judgment against such an insured taken after the date of entry of the liquidation order shall be considered in the liquidation proceedings as evidence of liability, or of the amount of damages, and no judgment against an insured taken by default, or by collusion prior to the entry of the liquidation order, shall be considered as conclusive evidence in the liquidation proceedings, either of the liability of such insured to such person upon such cause of action or of the amount of damages to which such person is therein entitled.
(4) No claim of any secured claimant shall be allowed at a sum greater than the difference between the value of the claim without security and the value of the security itself as of the date of the entry of the order of liquidation or such other date set by the court for determining rights and liabilities as provided in section 56-1426 unless the claimant shall surrender his security to the Commissioner, in which event the claim shall be allowed in the full amount for which it is valued.
56-1431. Time to file claims.-(1) If upon the entry of an order of liquidation under this Chapter or at any time thereafter during liquidation proceedings the insurer shall not be clearly solvent, the court shall, upon hearing after such notice it deems proper, make and enter an order adjudging the insurer to be insolvent.
(2) After the entry of the order of insolvency, regardless of any prior notice that may have been given to creditors, the Commissioner shall notify all persons who may have claims against such insurer to file such claims with him, at a place and within the time specified in the notice, or that such claims shall be forever barred. The time specified in the notice shall be as fixed by the court for filing of claims and which shall be not less than six months after the entry of the order of insolvency. The notice shall be given in such manner and for such reasonable period of time as may be ordered by the court.
56-1432. Report and petition for assessment.-Within

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three years after the date of the entry of an order of rehabilitation or liquidation of a domestic mutual insurer or a domestic reciprocal insurer, the Commissioner may make and file his report and petition to the court setting forth:
(1) The reasonable value of the assets of the insurer;
(2) The liabilities of the insurer to the extent thus far ascertained by the Commissioner;
(3) The aggregate amount of the assessment, if any, which the Commissioner deems reasonably necessary to pay all claims, the costs and expenses of the collection of the assessments and the costs and expenses of the delinquency proceedings in full; and
(4) Any other information relative to the affairs or property of the insurer that the Commissioner deems material.
56-1433. Order and levy of assessment.-(1) Upon the filing and reading of the report and petition provided for in section 56-1432, the court, ex parte, may order the Commissioner to assess all members or subscribers of the insurer who may be subject to such an assessment, in such an aggregate amount as the court finds reasonably necessary to pay all valid claims as may be timely filed and proved in the delinquency proceedings, together with the costs and expenses of levying and collecting assessments and the costs and expenses of the delinquency proceedings in full. Any such order shall require the Commissioner to assess each such member or subscriber his proportion of the aggregate assessment, according to such reasonable classification of such members or subscribers and formula as may be made by the Commissioner and approved by the court.
(2) The court may order additional assessments upon the filing and reading of any amendment or supplement to the report and petition referred to in subsection (1) above, if such amendment or supplement is filed within

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three years after the date of the entry of the order of rehabilitation or liquidation.
(3) After the entry of the order to levy and assess members or subscribers of an insurer referred to in subsections (1) or (2) above, the Commissioner shall levy and assess members or subscribers in accordance with the order.
(4) The total of all assessments against any member or subscriber with respect to any policy, whether levied pursuant to this Chapter or pursuant to any other provision of this Title, shall be for no greater amount than that specified in the policy or policies of the member or subscribers and as limited under this Title, except as to any policy which was issued at a rate of premium below the minimum rate lawfully permitted for the risk insured, in which event the assessment against any such policyholder shall be upon the basis of the minimum rate for such risk.
(5) No assessment shall be levied against any member or subscriber with respect to any nonassessable policy issued by the company with the Commissioner's approval as provided in accordance with this Title.
56-1434. Assessment prima facie correct; notice; pay-
ment; proceedings to collect.-(1) Any assessment of a subscriber or member of an insurer made by the Commissioner pursuant to the order of court fixing the aggregate amount of the assessment against all member or subscribers and approving the classification and formula made by the Commissioner under section 56-1433 (1) shall be prima facie correct.
(2) Each member of subscriber shall be notified of the amount of assessment to be paid by him by written notice mailed to the address of the member or subscriber last of record with the insurer. Failure of the member or subscriber to receive the notice so mailed, within the time specified therein or at all, shall be no defense in any proceeding to collect the assessment.

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(3) If any such member or subscriber fails to pay the assessment within the period specified in the notice, which period shall not be less than twenty (20) days after mailing, the Commissioner may obtain an order in the delinquency proceedings requiring the member or subscriber to show cause at a time and place fixed by the court why judgment should not be entered against such member or subscriber for the amount of the assessment together with all costs, and a copy of the order and a copy of the petition therefor shall be served upon the member or subscriber within the time and in the manner designated in the order.

(4) If the subscriber or member after due service of a copy of the order and petition referred to in subsection (3), above, is made upon him:

(a) Fails to appear at the time and place specified in the order, judgment shall be entered against him as prayed for in the petition; or

(b) Appears in the manner and form required by law in response to the order, the court shall hear and determine the matter and enter a judgment in accordance with its decision.

(5) The Commissioner may collect any such assessment through any other lawful means.

CHAPTER 56-15

DOMESTIC STOCK AND MUTUAL INSURERS: ORGANIZATION AND CORPORATE PROCEDURES

56-1501. 56-1502. 56-1503. 56-1504. 56-1505.
56-1506.

Scope of Chapter. Definitions. Applicability of general corporation statutes. Application for charter. Filing of application for charter; fee; publication, approval of Commissioner. Issuance of certificate of incorporation; right to do business.

247

DoMESTIC STocK, ETC.

56-1506.1. Sale of subscriptions for insurance securities; sale of insurance securities.
56-1507. Name of corporation. 56-1508. Corporate powers. 56-1509. Amendment or renewal of charter. 56-1510. Initial qualification; domestic mutual. 56-1511. Bond for solicitation; mutual application. 56-1512. Applications for insurance in formation of mu-
tual insurers. 56-1513. Formation of mutuals; premium deposit and
policy issuance. 56-1514. Formation of mutuals; failure to qualify. 56-1515. Bylaws of mutual insurers. 56-1516. Membership in mutuals. 56-1517. Additional kinds of insurance; mutuals. 56-1518. Contributions authorized. 56-1519. Directors; number, election, meetings. 56-1519.1. Proxies, consents, and authorizations in respect
of any voting security issued by a domestic insurer. 56-1520. Borrowed surplus. 56-1521. Participating policies. 56-1522. Principal office and records; penalty for unlawful removal of records. 56-1523. Dividend to stockholders. 56-1524. Dividend to mutual members. 56-1525. Illegal dividends; stock insurers; penalty. 56-1526. Illegal dividends; mutual insurers; penalty. 56-1527. Contingent liability of mutual members. 56-1528. Enforcement of contingent liability. 56-1529. Payment of contingent liability assessment. 56-1530. Mutual nonassessable policies.
56-1531. Impairment of capital or assets.
56-1532. Management and exclusive agency contracts.
56-1533. Prohibited pecuniary interest of officials.
56-1534. Mergers and consolidations; stock insurers.
56-1535. Mergers and consolidations; mutual insurers.
56-1536. Mutualization of stock insurers.
56-1537. Converting mutual insurer.
56-1538. Bulk reinsurance by stock insurers.

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56-1539. Bulk reinsurance by mutual insurers. 56-1540. Extinguishment of unused corporate charters. 56-1541. Mutual members' share of assets on liquidation. 56-1542. Commissions and limitations on organizational
expenses. 56-1543. Approval of issuance of stock of holding com-
panies; denial of certificate of authority to insurers. 56-1544. Voluntary dissolution; procedure. 56-1545. Surrender of charter. 56-1546. Surrender of charter; directors to act as trustees. 56-1547. Continuation for suit and winding up affairs.
56-1501. Scope of Chapter.-(1) This Chapter shall govern domestic mutual and stock insurers hereafter formed and shall govern existing domestic mutuals and stock insurers to the extent applicable.
(2) Any domestic stock or mutual insurer which as of the effective date of this Act, had duly filed its application for charter and was lawfully in process of completing its organization, shall complete its organization according to such procedures as were provided by laws in force immediately prior to the effective date of this Act.
(3) Existing domestic stock and mutual insurers are governed by the applicable provisions of this Chapter.
56-1502. Definitions.-(1) "Stock" insurer definedA "Stock" insurer is an incorporated insurer with capital divided into shares and owned by its shareholders.
(2) "Mutual" insurer defined-A "Mutual" insurer is an incorporated insurer without capital stock or shares, and is owned and governed by its policyholders.
56-1503. Applicability of general corporation statutes. -The applicable statutes of this State relating to the powers and procedures of domestic private corporations

249

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56-1504

formed for profit shall apply to domestic stock insurers and to domestic mutual insurers, except where in conflict with the express provisions of this Title and the reasonable implications of such provisions.
56-1504. Application for charter.-(1) This section applies to stock and mutual insurers hereinafter incorporated in this State.
(2) Five or more individuals of the age of twentyone (21) years or more of good moral character and who have not been convicted of any crime involving moral turpitude, may incorporate a stock insurer; ten (10) or more such individuals may incorporate a mutual insurer. Not less than two thirds (%) of the incorporators shall be citizens of the United States and residents of Georgia.
(3) The application for charter shall be signed by the persons applying for the charter and shall state:
(a) The name of the corporation;
(b) The duration of its existence, which shall be for thirty (30) years and shall be renewable;
(c) The names and addresses of the incorporators;
(d) The kinds of insurance the corporation is formed to transact, according to the definitions thereof set forth in Chapter 56-4;
(e) If a stock corporation, the authorized capital and the par value of each share, which par value shall be at least one ($1.00) dollars per share; Provided, however, that after the corporation has operated for three consecutive years the par value may be reduced below one ($1.00) dollar per share but shall be at least fifty ($0.50) cents par value. Shares without par value shall not be authorized. The capitalization shall not be less than that required of the insurer under the provisions of Chapter 56-3;

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(f) If a mutual corporation, the maximum contingent liability of its members (other than as to non-assessable policies) for payment of losses and expenses incurred, which liability shall be not less than one nor more than six times the premium for the member's policy at the annual premium rate for a term of one year;
(g) The number of directors, not less than three, who shall conduct the affairs of the corporation, and the names and addresses of the corporation's first directors and the officers for stated terms of office of not more than one year;
(h) The name of the city or town, and county in this State in which is to be located its home office and principal place of business;
(i) If a stock corporation, the extent, if any, to which shares of its stock shall be subject to assessment;
(j) If a stock corporation, the number of shares subscribed, if any, by each incorporator;
(k) The limitations, if any, on the corporation's indebtedness;
(1) Such other provisions, not inconsistent with law, deemed appropriate by the incorporators.
56-1505. Filing of application for charter; fee; publication; approval of Commissioner.-(!) The application for charter, with any and all exhibits that may be included with the application, shall be filed, in triplicate, in the office of the Secretary of State, and a fee of one hundred ($100.00) dollars shall be paid to the Secretary of State to be covered by him into the Treasury, and the Secretary of State shall not receive said application until said fee shall be paid.
(2) Immediately upon receipt of the triplicate copies of the application, with any and all exhibits included therewith, the Secretary of State shall certify one of the

251

DoMESTIC STocK, ETC.

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copies thereof and deliver the same to the applicants and the same shall be published by the applicants, once a week for four weeks, in the newspaper in which is published the legal advertisements of the county where the principal office of said company is to be located. When said application, with any and all exhibits thereto attached, shall have been published once a week for four weeks, the applicants may apply to the ordinary of said county to certify the fact of such publication, which certificate shall be filed by the applicants in the office of the Secretary of State.
(3) Immediately upon their receipt, the Secretary of State shall transmit one of the copies of the application for charter, and of any and all exhibits attached thereto, to the Commissioner for his approval or disapproval. The Commissioner shall approve or disapprove the application submitted to him within forty-five (45) days of the date same is received by him.
(4) The Commissioner shall examine said application to determine whether the charter, if granted, will enable the insurer to comply with the applicable insurance laws of this State and if he finds that the charter, if granted, will enable the insurer to comply with the applicable provisions of law for carrying on the business for which incorporation is sought, he shall issue, under his hand and official seal a certificate approving the granting of the charter for such insurer and shall transmit a copy of such certificate of approval to the Secretary of State.
(5) If the Commissioner finds that the proposed application for a charter does not comply with the law, or that the corporation, if organized, could not meet the requirements for a certificate of authority as set forth in this Title, or any other provision of this Title, he shall refuse to approve the application for charter, and shall notify the incorporators, in writing, as to his reasons for such failure to approve and he shall issue, under his hand and official seal a certificate disapproving the granting of the charter for such insurer and shall trans-

1

56-1506

DoMESTIC STOCK, ETC.

252

-------------------

mit a copy of such certificate of disapproval to the Secretary of State.

56-1506. Issuance of certificate of incorporation; right to do business.--(1) All corporate powers and privileges to insurance companies shall be issued and granted by the Secretary of State, upon the terms, liabilities, restrictions, and subject to all the provisions of this Title and the laws and Constitution of this State. If from any cause the Secretary of State should be disqualified from i,ssuing and granting said powers, the duties required by this Title to be performed by the Secretary of State shall be performed by the Comptroller General.

(2) When the certificate of the ordinary as to the fact of publication of the application for charter and the certificate of the Commissioner as to. his approval of the application for charter shall have been received in the office of the Secretary of State, the Secretary of State shall issue to the corporation, under the great seal of the State, a certificate of incorporation. Such corporation shall not transact business as an insurer until it has applied for and received from the Commissioner a certificate of authority as provided by this Title.

(3) The Secretary of State shall record the application for charter, the certificate of approval of the Commissioner, the certificate of the ordinary as to publication and the certificate of incorporation, in a book to be kept by him for that purpose.

(4) No corporation shall directly or indirectly take risks or transact any business of insurance in this State, by any agent or agents in this State, until it shall have appointed an attorney in this State on whom process of law can be served, and file in the office of the Commissioner a written instrument, duly signed and sea.led, certifying such appointment, which shall continue until another attorney shall be substituted, and any process issued by any court of record in this State, and served upon such attorney by the proper officer of the county

253

DoMESTIC STocK, ETC.

56-1506.1

in which such attorney may reside or may be found, shall be deemed a sufficient service of process upon such company, but service of process upon such company may also be made in any other manner provided by law. Any violation of this subsection shall subject the party violating the same to a penalty of not less than one hundred ($100.00) dollars nor more than five hundred ($500) dollars.
56-1506.1. Sale of subscriptions for insurance securities; sale of insurance securities.- (a) No person shall sell, offer for sale or propose to sell to the public any subscriptions for insurance securities in this State unless the insurer which shall issue the insurance securities provided in such subscription has applied for, qualified for, received and holds authority to transact insurance in the State of Georgia from the Insurance Commissioner, or has an effective registration of such subscriptions for insurance securities with the Securities and Exchange Commission, or unless such subscriptions are sold by or through a broker in accordance with the rules of the Securities and Exchange Commission.
(b) No person shall sell, offer for sale or propose to sell to the public any insurance securities in this State unless the insurer which shall issue said insurance securities has applied for, qualified for, received and holds authority to transact insurance in the State of Georgia from the Insurance Commissioner, or has an effective registration of such securities with the Securities and Exchange Commission, or unless such securities are sold by or through a broker in accordance with the rules of the Securities and Exchange Commission.
(c) "Insurance securities" as used in this section shall m~an the securities of an insurer who is the issuer of a security as the word "security" is defined in the Georgia Securities Act [Chapter 97-1].
(d) Nothing contained in this section shall be deemed to repeal any of the provisions of the Georgia Securities Act [Chapter 97-1], but shall be supplementary and in addition thereto.
(e) Any person violating the provisions of this section

56-1507

DoMESTIC STocK, ETC.

254 '

shall be guilty of a misdemeanor and upon conviction thereof shall be punished as provided by section 569913.3.
(f) The Insurance Commissioner shall be authorized to withhold the authority to transact insurance in this State of any insurer so long as any person who has been convicted of any offense defined in this section remains an officer, employee or agent of the person or entity seeking the authority to transact insurance.
56-1507. Name of corporation.-(!) No such name shall be adopted by a domestic mutual or stock insurance corporation which is so similar to any name already in use by any such existing corporation, company or association, organized or doing business in this State, as to be confusing or misleading and the Commissioner shall not aP,prove an application from such an applicant nor shall the Secretary of State issue a Charter to such an applicant. The name of any such corporation shall include the word "company" or "corporation," or have such word or words, abbreviation, suffix or prefix therein or thereto as will clearly indicate that it is a corporation.
(2) If a mutual insurer, the word "mutual" shall also be a part of the name.
56-1508. Corporate powers.-Every corporation organized under the provisions of this Title shall have the same corporate powers as are conferred upon private corporations, except where inconsistent with the provisions of this Chapter.
56-1509. Amendment or renewal of charter.-(1) A domestic insurer may amend its charter for any lawful purpose by written authorization of the holders of a majority of the voting power of its outstanding capital stock, or members if a mutual insurer, or by affirmative vote of such a majority voting at a lawful meeting of stockholders or members of which the notice given to stockholders or members included prior notice of not less than ten (lO)days of the proposal to amend.

255

DoMESTIC STocK, ETC.

56-1509

(2) Upon authorization of such an amendment, the insurer shall file in the office of the Secretary of State an application asking that its charter be so amended, and a fee of twenty-five ($25.00) dollars shall be paid to the Secretary of State to be covered by him into the Treasury, and the ,Secretary of State shall not receive said application until said fee shall be paid. The application, with any and all exhibits that may be included, shall be filed in triplicate, signed with the corporate name and under the corporate seal, and shall state:
(a) The name and character of the corporation, and the city or town, and county in this State in which is located its principal place of business;
(b) The date of its original charter and any and all amendments thereto, and the date (s) of renewal of charter;
(c) That it desires an amendment to its charter and the purpose of said amendment;
There shall be annexed to the application a certifi~ate, in triplicate, under the corporate seal of the insurer and executed by the insurer's president or vice president and attested to by the secretary or assistant secretary under the seal of the corporation, setting forth that amendment has been authorized in writing by the holders of a majority of the voting power of the outstanding capital stock, or members if a mutual insurer, or by affirmative vote of such a majority voting at a lawful meeting of stockholders or members of which the notice given to stockholders or members included prior notice of not less than ten (10) days of the proposal to amen&
(3) Immediately upon receipt of the triplicate copies of the application, with any and all exhibits included therewith, the Secretary of State shall certify one of the copies thereof and deliver the same to the applicants and the same shall be published by the applicants, once a week for four weeks, in the newspaper in which is published the legal advertisements of the county where

56-1509

DoMESTIC STocK, ETC.

256

the principal office of said company is to be located. When said application, with any and all exhibits thereto attached, shall have been published once a week for four weeks, the applicants may apply to the ordinary of said county to certify the fact of such publication, which certificate shall be filed by the applicants in the office of the Secretary of State. Immediately upon their receipt, the Secretary of State shall transmit one of the copies of the application for amendment of charter, and of any and all exhibits attached thereto, to the Commissioner for his approval or disapproval. The Commissioner shall approve or disapprove the application submitted to him within forty-five (45) days of the date same is received by him.
(4) No such amendment shall be granted which will reduce authorized capital of a stock insurer below the amount required by this Title for the kinds of insurance thereafter to be transacted, and no such amendment shall reduce the surplus of a mutual insurer below the amount required by this Title for the kinds of insurance thereafter to be transacted.
(5) If an amendment of the charter would reduce the authorized capital stock of a stock insurer below the amount thereof then outstanding, the Commissioner shall not approve the amendment if he has reason to believe that the interest of policyholders or creditors of the insurer would be materially prejudiced by such reduction. If any such reduction of capital stock is effectuated, the insurer may require return of the original certificates of stock held by each stockholder in exchange for new certificates for such number of shares as such stockholder is then entitled in the proportion that the reduced capital bears to the amount of capital stock outstanding as of immediately prior to the effective date of such reduction.
(6) When the certificate of the ordinary as to the fact of publication of the application for amendment to charter and the certificate of the Commissioner as to his approval of such application for amendment shall have been received in the office of the Secretary of

257

DoMESTIC STocK, ETC.

56-1510

State, the Secretary of State shall issue to the corporation, under the great seal of the State, a certificate of amendment. The Secretary of State shall record the application for amendment to charter, the certificate of approval of the Commissioner, the certificate of the ordinary as to publication and the certificate of amendment, in a book to be kept by him for that purpose.
(7) A petition for renewal of the charter shall follow the procedure set forth in subsection (2) thru (6) above.

56-1510. Initial qualifications; domestic mutual.-(1) When newly organized, a domestic mutual insurer may be authorized to transact any one of the kinds of insurance listed in the schedule contained in subsection (2) of this section, and as limited in section 56-305.

(2) When applying for an original certificate of au-

thority, the insurer must be otherwise qualified therefor

under this Title, and must have received and accepted

bona fide applications as to substantial insurable subjects

for insurance coverage of a substantial character of the

kind of insurance proposed to be transacted, must have

collected in cash and full premium therefor at rates

meeting the requirements of Chapters 56-5a and 56-5b,

must have surplus funds on hand as of the date such

insurance coverages are to become effective, or, in lieu

of such applications, premiums and surplus, may deposit

surplus, all in accordance with that part of the following

schedule which applies to the kind of insurance the in-

surer proposes to transact:

(A) Kind of Insurance

- - -.ll-.l:oac~zcn~.c~~~<..]<u.u:..tu_-zo:ca~.~.u!=~r.!lf'.".l..C"u,-I:~oS-..:=.=Ea..&.SeQ.;.l.oU:

~~~ ~<~~
-.5 ~.(:Is)
:a-

.e:.<.I....
~<~.~ -~:a..~sr~ll

S-aae=-"e.=. ";..
~~"'

.. .
-oe. .-Vi ::r
:-I: Q.8.. =U)

(V)

(VI)

(VI)

(I) Life

500 500

(II) Accident & Sickness ---- 500 500

(III) Property - ----
(IV) Ca sualty -------
Cas ualty with Workmen's Compensation ----

100 250
250

250 500
1,500

Ann. Quar.
Ann. Ann.

$1,000 $ 2,500 $200,000 $200,000

$10

$25 $200,000

(Weekly (Weekly lndem.) Indem.)

$1,000 $ 3,000 $200,000

$1,000 $10,000 $200,000

$200,000
$200,000 $200,000

Quar. $1,000 Statutory $300,000 $300,000

56-1511

DOMESTIC STOCK, ETC.

258

The following provisos are respectively applicable to the foregoing schedule and provisions as indicated by like Roman numerals appears in such schedule:
(I) All applicants must be bona fide residents of this State, and no group insurance or term policies for terms. of less than ten (10) years shall be included;
(II) All applicants must be bona fide resident of this: State. No group, blanket or family plans of insurance shall be included. In lieu of weekly indemnity a like premium value in medical, surgical, and hospital benefits may be provided. Any accidental death or dismemberment benefit provided shall not exceed twenty-five hundred ($2,500) dollars;
(III) Only insurance of the owner's interest in real property situated in this State may be included;
(IV) Must include insurance of legal liability for bodily injury and property damage, to which the maximum and minimum insured amounts apply. All applicants must be bona fide residents of this State;
(V) The maximums provided for in this column (F) are net after deducting applicable reinsurance;
(VI) The deposit of surplus in the amount specified in columns (G) and (H) must thereafter be maintained unimpaired. The deposit is subject to the provisions of Chapter 56-11.
56-1511. Bond for solicitation; mutual applications. -(1) Prior to the solicitation of any applications for insurance pursuant to the requirements for a certificate of authority of a mutual insurer, the incorporators of the proposed insurer shall file with the Commissioner a corporate surety bond in the penalty of fifteen thousand ($15,000) dollars, in favor of the State and for the use and benefit of the State and of applicant members and creditors of the corporation. The bond shall be conditioned as follows:

259

DoMESTIC STocK, ETC.

56-1512

(a) For the prompt return to applicant members of all premiums collected in advance; and
(b) For payment of all indebtedness of the corporation; and
(c) For payment of costs incurred by the State in event of any legal proceedings for liquidation or dissolution of the corporations; all in the event the corporation fails to complete its organization and secure a certificate of authority within two years from and after the date of the certificate of incorporation.
(2) In lieu of such bond, the incorporators may deposit with the Commissioner fifteen thousand ($15,000) dollars in cash or United States government bonds, negotiable and payable to the bearer, with a market value at all times of not less than fifteen thousand ($15,000) dollars, to be held in trust upon the same conditions as required for the bond.
(3) Any such bond filed or deposited or remaining portion thereof held under this section shall be released and discharged upon settlement and termination of all liabilities against it.
56-1512. Applications for insurance in formation of mutual insurers.-(1) Upon receipt of the Commissioner's approval of the bond or deposit as required by section 56-1511, the directors and officers of the proposed domestic mutual insurer may .commence solicitation of such requisite applications for insurance policies as they may accept, and may receive deposits of premiums thereon.
(2) All such applications shall be in writing signed by the applicant.
(3) All applications shall provide that:
(a) Issuance of the policy is contingent upon the insurer qualifying for and receiving a certificate of authority ; and

56-1513

DoMESTIC STocK, ETc.

260

(b) No insurance is in effect unless and until the certificate of authority has been issued; and
(c) The prepaid premium or deposit, and membership or policy fee, if any, shall be refunded in full to the applicant if organization is not completed and the certificate of authority is not issued and received by the insurer before a specified reasonable date which date shall not be later than two years after the date of the certificate of incorporation.
(4) All qualifying premiums collected shall be in cash.
56-1513. Formation of mutuals; premium deposit and policy issuance.-(1) All sums collected by a domestic mutual corporation as premiums or fees on qualifying applications for insurance therein shall be deposited .in trust in a bank or trust company in this State, which is authorized under the laws of this State to act as a depository of State funds and which has its deposits insured by the Federal Deposit Insurance Corporation, under a written trust agreement consistent with this section and with subsection (3) (c) of section 56-1512. The corporation shall file an executed copy of such trust agreement with the Commissioner.
(2) Upon issuance to the corporation of a certificate of authority as an insurer for the kind of insurance for which such applications were solicited, all funds so held in trust shall become the funds of the insurer, and the insurer shall issue and deliver its policies for which premiums have been paid and accepted. The insurance provided by such policies shall be effective as of the date of the certificate of authority.
56-1514. Formation of mutuals; failure to qualify.If the proposed domestic mutual insurer fails to complete its organization and to secure its original certificate of authority within two years from and after the date of its incorporation, the corporation shall be dissolved by the Commissioner and the Commissioner shall return or cause

261

DoMESTIC STocK, ETC.

56-1515

to be returned to the persons entitled thereto all advance deposits or payments of premiums held in trust under section 56-1513.
56-1515. Bylaws of mutual insurers.-(1) The initial board of directors of a domestic mutual insurer shall adopt original bylaws, subject to the approval of the insurer's members at the next succeeding meeting. The members shall have power to make, modify and revoke bylaws.
(2) The bylaws shall provide:
(a) That each member is entitled to one vote upon each matter coming to a vote at meetings of members, or to more votes in accordance with a reasonable classification of members as set forth in the bylaws and based upon the amount of insurance in force, numbers of policies held or upon the amount of the premiums paid by such members, or upon other reasonable factors. A member shall have the right to vote in person or by his written proxy. No such proxy shall be made irrevocable;
(b) For election of directors by the members, and the number, qualifications, terms of office, and powers of directors;
(c) The time, notice, quorum, and conduct of annual and special meetings of members and voting thereat. The bylaws may provide that the annual meeting shall be held at a place, date and time to be set forth in the policy and without giving other notice of such meeting;
(d) The number, designation, election, terms and powers and duties of the respective corporate officers;
(e) For deposit, custody, disbursement and accounting for corporate funds;
(f) For any other reasonable prov1s10ns customary, necessary or convenient for the management or regula-

56-1516

Dol\IESTIC STocK, ETC.

262

tion of its corporate affairs and not inconsistent with law.
(3) The insurer shall promptly file with the Commissioner a copy, certified by the insurer's secretary or assistant secretary, of its bylaws and of every modification thereof or addition thereto. The Commissioner shall disapprove any bylaw provision deemed by him to be unlawful, unreasonable, inadequate, unfair or detrimental to the proper interests or protection of the insurer's members or any class thereof. The insurer shall not, after receiving written notice of such disapproval and during the existence, thereof, effectuate any bylaw provision so disapproved.
56-1516. Membership in mutuals.-(1) Each policyholder of a domestic mutual insurer, other than of a reinsurance contract, is a member of the insurer with all rights and obligations of such membership, and the policy shall so specify.
(2) Any person, government or governmental agency, state or political subdivision thereof, public or private corporation, board, association, firm, estate, trustee or fiduciary may be a member of a domestic, foreign or alien mutual insurer. Any officer, stockholder, trustee or legal representative of any such corporation, board, association or estate may be recognized as acting for or on its behalf for the purpose of such membership, and shall not be personally liable upon any contract of insurance for acting in such representative capacity.
(3) Any domestic corporation may participate as a member of a mutual insurer as an incidental purpose for which such corporation is organized, and as such granted as the rights and powers expressly conferred.
56-1517. Additional kinds of insurance; mutuals.A domestic mutual insurer, formed after the effective date of this Act, after being authorized to transact one kind of insurance, shall be authorized by the Commis-

263

DoMESTIC STocK, ETC.

56-1519.1

sioner to transact such additional kinds of insurance as are permitted under section 56-305, while otherwise in compliance with this Title and while maintaining unimpaired surplus funds in an amount not less than the amount of paid-in capital stock required of a domestic stock insurer transacting like kinds of insurance, subject further to the additional expendable surplus requirements of this Title applicable to such a stock insurer.
56-1518. Contributions authorized.-An insurer shall have power to make donations for the public welfare or for charitable, scientific or educational purposes, subject to such limitations, if any, as may be contained in its charter or any amendment thereto.
56-1519. Directors; number; election; meetings.-(1)
The affairs of every domestic insurer shall be managed by not less than three directors.
(2) Directors must be elected by the members or stockholders of a domestic insurer at the annual meeting of stockholders or members. Directors may be . elected for terms of not more than three years each and until their successors are elected and have qualified, and if to be elected for terms of more than one year the insurer's bylaws shall provide for a staggered term system under which the terms of a proportionate part of the members of the board of directors will expire on the date of each annual meeting of stockholders or members.
(3) At least one-fourth (14) of the directors of such insurer must be residents of this State. A majority of the directors must be citizens of the United States.

56-15.J 9.1. Proxies, consents, and authorizations in
respect of any voting security issued by a domestic insur-
er.-(a) The Commissioner may, by regulation, prescribe the form, content and manner of solicitation of any proxy, consent or authorization in respect of any voting security issued by a domestic insurer as necessary or appropriate in the public interest or for the proper protection of in-

56-1520

DoMESTIC STocK, ETC.

264

vestors in the voting securities issued by such insurer, or to insure the fair dealing in such voting securities.
(b) No person and no domestic insurer or any director, officer or employee of such insurer shall solicit or permit the use of his name to solicit, by mail or otherwise, any person to give or to refrain from giving any proxy, consent or authorization in respect of any voting security issued by such insurer in contravention of any rule or regulation the Commissioner may prescribe pursuant to this section 56-1519.1.
(c) Failure to comply with any rule or regulation of the Commissioner made pursuant to this section shall be unlawful and compliance may be enforced by appropriate action in law or equity. If a domestic insurer or any person who is legally entitled to vote, consent or authorize by virtue of being the holder of record of such voting security shall fail to commence such action within 15 days after the date on which such vote was cast or counted, the Commissioner may enforce compliance with the rules and regulations made pursuant to this section by appropriate action in law or equity: Provided, however, no suit shall be brought more than 30 days after the date on which such vote, consent or authorization was to have been effected.
(d) None of the prov1s10ns of this section 56-1519.1. shall apply to voting securities of a domestic insurer if such voting securities shall be registered pursuant to section 12 of the Securities Exchange Act of 1934, as amended.
(e) The term "voting security" as used in this section shall mean any instrument which, in law or by contract, gives the holder the right to vote, consent or authorize any corporate action of an insurer.
56-1520. Borrowed Surplus.- (1) A domestic stock or mutual insurer may borrow money to defray the expenses of its organization, provide it with surplus funds, or for any purpose required by its business, upon a written

265

DoMESTIC STocK, ETC.

56-1520

agreement that such money is required to be repaid only out of the insured's surplus in excess of that stipulated in such agreement. The agreement may provide for interest not exceeding a reasonable rate per annum which interest shall or shall not constitute a liability as provided in said agreement.
(2) Money heretofore or hereafter so borrowed, together with interest thereon if so stipulated in the agreement, shall not be considered on the financial statements of the insurer as a legal liability or be the basis of any set-off; but until repaid, financial statements filed or published by the insurer shall show as a footnote thereto the amount thereof then unpaid together with any interest thereon accrued but unpaid. No such borrowed surplus shall be returned to the lender, except out of earned surplus in excess of that surplus required by this title to transact the kind of insurance for which the company is authorized; provided, however, that on liquidation of such company said borrowed surplus will be paid off out of any assets remaining after the payment of all other liabilities of the companies.
(3) Such insurer in advance of any such loan shall file with the Commissioner a statement of the purposes of the loan and a copy of the proposed loan agreement, which shall be subject to the Commissioner's approval. The loan and agreement shall be deemed approved unless within forty-five (45) days after date of such filing with the Commissioner, the insurer is notified in writing of the Commissioner's disapproval and the reasons therefor. The Commissioner shall so disapprove any such proposed loan or agreement if he finds that the loan is reasonably unnecessary or excessive for the purpose intended, or that the terms of the loan agreement are not fair and equitable to the parties, and to other similar lenders, if any, to the insurer, or is not fair to policyholders, or that the information so filed by the insurer is inadequate.
(4) Any such loan to a mutual insurer or substantial portion thereof shall be repaid by the insurer when no

56-1 521

D OM ESTIC STOCK, ETC.

266

longer reasonably necessary for the purpose originally intended. No repayment of such a loan shall be made by a mutual insurer unless pursuant to regulations made by the Commissioner.
(5) This section shall not apply to loans obtained by the insurer in ordinary course of business from banks and other financial institutions, nor to loans secured by pledge of assets.
56-1521. Participating policies.-(1) If so provided in its charter, a domestic stock or domestic mutual insurer may issue any or all of its policies with or without participation in profits, savings, or unabsorbed protions of premiums, may classify policies issued on a participating or nonparticipating basis, and may determine the right to participate and the extent of participation of any class or classes of policies. Any such classification or
rmination shall be reasonable, and shall not unfairly ,riminate as between policyholders within the same Ruch classification. A life insurer may issue both participating and nonparticipating policies only if the right or . absence of right to participate is reasonably related to the premium charged.
(2) No dividend, otherwise earned, shall be made contingent upon the payment of renewal premium on any policy.
56-1522. Principal office and records; penalty for unlawful removal of records.-(1) Every domestic insurer shall have and maintain its principal place of business in this State, and shall keep therein complete records of the assets, transactions, and affairs i!!._. a_!:!.c m::Q.~n_c.e_will:!_ su ~hods and systems as are customary or suitable as to the kind or kinds of insurance transacted.
(2) Every domestic insurer shall have and maintain its assets in this State, except as to:
(a) Real property and personal property appurtenant

'267

DoMESTIC STocK, ETC.

56-1522

thereto lawfully owned by the insurer and located outside of this State; and
(b) Such property of the insurer as may be customary, necessary and convenient to enable and facilitate the operation of its branch offices and regional home offices located outside of this State as referred to in subsection (4) below.
(3) Removal of all or a material part of the records or assets of a domestic insurer from this State except pursuant to a plan of merger or consolidation approved by the Commissioner under this Title, or for such reasonable purposes and periods of time as may be approved by the Commissioner in writing in advance of such removal, or concealment of such records or assets or material part thereof from the Commissioner is prohibited. Any insurer or representative of an insurer who removes or attempts to remove such records or assets or such material part thereof from the home office or other place of business or of safekeeping of the insurer in this State with the intent to remove the same from this State or conceals or attempts to conceal the same from the Commissioner in violation of this subsection shall have its corporate charter forfeited, and its certificate of authority to do business shall be revoked. Upon any removal or attempted removal of such records or assets or upon retention of such records or assets or material part thereof outside this State, beyond the period thereof specified in the Commissioner's consent under which the records removed thereat, or upon concealment of or attempts to conceal records or assets in violation of this subsection, the Commissioner may institute proceedings against the insurer pursuant to the provisions of Chapter 56-14.
(4) This section shall not be deemed to prohibit or prevent an insurer from:
(a) Establishing and maintaining branch offices or regional home offices in other states where necessary or convenient to the transaction of its business and keeping

56-1523

DoMESTIC STocK, ETC.

therein the detailed records and assets customary and necessary for the servicing of the insurance in force in the territory served by such an office, as long as such records and assets are made readily available at such office for examination by the Commissioner at his request;
(b) Having, depositing or transmitting funds and assets of the insurer in or to jurisdictions outside of this State as reasonably and customarily required in the regular course of its business.
56-1523. Dividends to stockholders.-A domestic stock insurer may pay dividends to its stockholders only out of realized profits as defined or upon special approval of the Commissioner upon the terms and conditions hereafter set out. For the purpose of this section realized profits shall mean undistributed, accumulated net earnings since organization. In the event prior losses have either impaired capital or reduced expendable surplus the Commissioner may by written special approval consent to the payment of dividends from net undistributed, accumulated profits realized after some later fixed by him, provided he shall find that on the date fixed capital was unimpaired, the insurer had expendable surplus at least as large as would then be required of it for issuance of an original certificate of authority and neither policyholders nor creditors would be injured by this special consent.
56-1524. Dividends to mutual members.-(1) The directors of a domestic mutual insurer may from time to time apportion and pay or credit to its members dividends only out of that part of its surplus funds which represent net realized savings and net realized earnings from its business.
(2) A dividend otherwise proper may be payable out of such savings and earnings even though the insurer's total surplus is then less than the aggregate of its contributed surplus.
56-1525. Illegal dividends; stock insurers; penalty.-

269

DoMESTIC STocK, ETC.

56-1527

(1) Any director of a domestic stock insurer who votes

for or concurs in declaration or payment of an illegal

dividend to stockholders shall upon conviction thereof be

guilty of a misdemeanor, and shall be jointly and sev-

erally liable, together with other such directors, for any

loss thereby sustained by the insurer.

'

(2) The stockholders receiving such an illegal dividend shall be liable in the amount thereof to the insurer.

(3) The Commissioner may revoke or suspend the certificate of authority of an insurer which has declared or paid an illegal dividend.

56-1526. Illegal dividends; mutual insurers; penalty. -Any director of a domestic mutual insurer who wilfully and with knowledge votes for or concurs in a declaration or payment of a dividend which reduces surplus below the minimum required surplus, shall upon conviction thereof be guilty of a misdemeanor and shall be jointly and severally liable, together with other such directors likewise voting for or concurring in wilfully and with knowledge, for any loss thereby sustained by the insurer.

56-1527. Contingent liability of mutual members.(1) Each member of a domestic mutual insurer shall, except as otherwise hereinafter provided with respect to nonassessable policies, have a contingent liability, pro rata and not one for another, for the discharge of its obligations, which contingent liability shall be in such maximum amount as is stated in the insurer's charter.
(2) Each policy issued by the insurer shall contain a statement of the contingent liability, if any, of its members.
(3) Termination of the policy of any such member shall not relieve the member of contingent liability for his proportion, if any, of the obligations of the insurer which accrued while the policy was in force.
(4) Unrealized contingent liability of members does

56-1528

DoMESTIC STocK, ETC.

270

not constitute an asset of the insurer in any determination of its financial condition.
56-1528. Enforcement of contingent liability.-(1) If at any time the assets of a domestic mutual insurer are less than its liabilities and the minimum amount of surplus required of it by this Title for authority to transact the kinds of insurance being transacted, and the deficiency is not cured from other sources, its directors shall levy an assessment only upon its members who at any time within the twelve (12) months immediately preceding the date notice of such assessment was mailed to them held policies providing for contingent liability, and such members shall be liable to the insurer for the amount so assessed.
(2) The assessment shall be for such an amount as is required to cure such deficiency and to provide a reasonable amount of working funds above such minimum amount of surplus, but such working funds so provided shall not exceed five (5 % ) percent of the insurer's liabilities as of the date as of which the amount of such deficiency was determined.
(3) In levying an assessment on policies providing for contingent liability, the assessment shall be computed on a basis of premium earned on such policy.
(4) No member shall have an offset against any assessment for which he is liable, on account of any claim for unearned premium or loss payable.
56-1529. Payment of contingent liability assessment. -(1) Any assessment made by an insurer under sections 56-1527 and 56-1528 is prima facie correct. The amount of such assessment to be paid by each member as determined by the insurer is likewise prima facie correct.
(2) The insurer shall notify each member of the amount of the assessment to be paid by written notice mailed to the address of the member last of record with the insurer. Failure of the member to receive the notice so mailed, within the time specified therein for the payment

271 ,.

DoMESTic STocK, ETC.

56-1530

of the assessment or at all, shall be no defense in any action to collect the assessment.
(3) If a member fails to pay the assessment within the period specified in the notice, which period shall not be less than twenty (20) days after mailing, the insurer may institute suit to collect same.
(4) As to life insurance, any part of such an assessment upon a member which remains unpaid following notice of assessment, demand for payment, and lapse of a reasonable waiting period as specified in such notice, may, if approved by the Commissioner as being in the best interests of the insurer and its members, be secured by placing a lien upon the cash surrender values and accumulated dividends held by the insurer to the credit of such member.
56-1530. Mutual nonassessable policies.-(1) While a domestic mutual insurer maintains the deposits and surplus funds necessary for the kinds of insurance it is transacting, and is otherwise in compliance with this Title and is in a sound condition, it may extinguish the contingent liability Of its members as to all its policies in force and may omit provisions imposing contingent liability in all its policies currently issued upon receiving written approval by the Commissioner. The Commissioner shall revoke the authority of a domestic mutual insurer to issue policies without contingent liability at any time the insurer's assets are less than the sum of its liabilities and the surplus required for such authority, or if the insurer, by resolution of the board of directors approved by a majority of its members present and voting in person or by proxy at a meeting called for that purpose, requests that such authority be revoked.
(2) A foreign or alien mutual insurer may issue nonassessable policies to its members in this State pursuant to its articles of incorporation and the laws of its domicile.
{3) The financial requirements for deposits and surplus funds for existing insurers shall be subject to the provisions of section 56-311.

56-1531

DoMEsTic STocK, ETc .

272

56-1531. Impairment of capital or assets.-(1) If the capital of a domestic stock insurer becomes impaired, or the assets of a domestic mutual insurer are less than its liabilities and the minimum amount of surplus required of it by this Chapter for authority to transact the kinds of insurance being transacted, the Commissioner shall at once determine the amount of the deficiency and serve notice upon the insurer to make good the deficiency within sixty (60) days after service of such notice.
(2) The deficiency may be made good in cash or in assets eligible under this Title for the investment of the insurer's funds; or if a stock insurer by reduction of the insurer's capital to an amount not below the minimum required for the kinds of insurance thereafter to be transacted; or if a mutual insurer, by amenqment of its certificate of authority to cover only such kinds of insurance for which the insurer has .on deposit sufficient surplus.
(3) If the deficiency is not made good and proof thereof filed with the Commissioner within such sixty (60) day period, the insurer shall be deemed insolvent, and the Commissioner shall institute delinquency proceedings against it as authorized by this Title. If such deficiency exists because of increased loss reserves required by the Commissioner, or because of disallowance by the Commissioner of certain assets or reduction of the value at which carried in the insurer's accounts, the Commissioner may in his discretion and upon application and good cause shown, extend for not more than an additional sixty (60) days the period within which such deficiency may be so made good and such proof thereof so filed.
56-1532. Management and exclusive agency contracts. -(1) No domestic insurer shall make any contract whereby any person is granted or is to enjoy in fact the management of the insurer to the substantial exclusion of its board of directors or to have the controlling or preemptive right to produce substantially all insurance business for the insurer, unless the contract is filed with and approved by the Co~missioner. The contract shall be

27 3

D oMESTIC STocK , ETC.

56-1533

deemed approved unless disapproved by the Commissioner within. forty-five (45) days after date of filing, subject to' such reasonable extension of time as the Commissioner may require by notice given within such fortyfive (45) days. Any disapproval shall be delivered to the insurer in writing, stating the grounds therefor.
(2) Any such contract shall provide that any such manager or producer of its business shall within ninety (90) days after expiration of each calendar year furnish the insurer's board of directors a written statement of amounts received under or on account of the contract and amounts expended thereunder during such calendar year, including the emoluments received therefrom by the r espective directors, officers, and other principal management personnel of the manager or producer, with such classification of items and further detail as the insurer's board of directors may reasonably require.
(3) The Commissioner shall disapprove any such contract if he finds that it:
(a) Subjects the insurer to excessive charges; or
(b) It is to extend for an unreasonable length of time; or
(c) Does not contain fair and adequate standards of performance ; or
(d) Contains other inequitable provision or provisions which impair the proper interest of stockholders or members of the insurer.
56-1533. Prohibited pecuniary interest of officials.(1) Any officer or director, or any member of any committee or an employee of a domestic insurer who is charged with the duty of investing or handling the insurer's funds shall not deposit or invest such funds except in the insurer's corporate name; shall not borrow the funds of such insurer; shall not be pecuniarily interested

56-1534

DoMESTIC STocK, ETC.

274

in any loan, pledge of deposit, security, investment, sale, purchase, exchange, reinsurance, or other similar transaction or property of such insurer except as a stockholder or member; shall not take or receive to his own use any fee, brokerage, commission, gift, or other consideration for or on account of any such transaction made by or on behalf of such insurer.
(2) No insurer shall guarantee any financial obligation of any of its officers or directors.
(3) This section shall not prohibit such a director or officer, or member of a committee or employee from becoming a policyholder of the insurer and enjoying the usual rights so provided for its policyholders.
(4) The Commissioner may, by regulation from time to time, define and permit additional exceptions to the prohibition contained in subsection ( 1) of this section solely to enable payment of reasonable compensation to a director who is not otherwise an officer or employee of the insurer, or to a corporation or firm in which a director is interested, for necessary services performed or sales or purchases made to or for the insurer in the ordinary course of the insurer's business and in the usual private professional or business capacity of such director or such corporation or firm.
56-1534. Mergers and consolidations; stock insurers.
- (1) A domestic stock insurer may merge or consolidate with one or more domestic, alien or foreign stock corporations, by complying with the applicable provisions of the statutes of this State governing the merger or consolidation of stock corporations formed for profit, and the provisions of sections 56-1505 and 56-1506.
(2) No director, officer, agent, or employee of any insurer party to such merger or consolidation shall receive any fee, commission, compensation or other valuable consideration whatsoever for or in any manner aiding, promoting or assisting therein except as set forth in such plan or agreement.

' 275

DoMESTic STocK, ETC.

56-1536

56-1535. Mergers and consolidations; mutual insurers. -{1) Upon complying with the applicable procedures prescribed by the statutes of this State applying to corporations formed for profit, except as hereinafter provided, any domestic mutual insurer is authorized and empowered to merge or consolidate with any domestic company or with any foreign or alien company if such merger or consolidation is authorized by the laws of the state or country under which such foreign or alien company is incorporated or organized.
(2) The plan and agreement for merger or consolidation shall be submitted to and approved by at least twothirds (%) of the members of each mutual insurer involved voting thereon in person or by proxy at meetings called for the purpose pursuant to ten (10) days' notice and such procedure as has been approved by the Commissioner. If a life insurer, right to vote may be limited to members whose policies are other than term or group policies and have been in effect for more than one year, as the bylaws may provide.
(3) No such merger or consolidation shall be effectuated unless in advance thereof the plan and agreement therefor have been filed with the Commissioner and approved by him in writing. The Commissioner shall give such approval within sixty (60) days after such filing unless he finds such plan or agreement:
(a) Inequitable to the policyholders or any domestic insurer involved; or
(b) Would substantially reduce the security of and service to be rendered to policyholders of the domestic insurer in this State and elsewhere.
(4) If the Commissioner does not approve such plan or agreement he shall so notify the insurers in writing specifying his reasons therefor.
56-1536. Mutualization of stock insurers.-(1) A domestic stock insurer certified to issue only those kinds of

56-1536

DoMESTIC STocK, ETC.

276

insurance which domestic mutual insurers are authorized to issue under this Title may become a domestic mutual insurer pursuant to such plan and procedure as may be approved in advance by the Commissioner.
(2) The Commissioner shall not approve any such plan or procedure unless:
(a) It is equitable to stockholders and policyholders;
(b) It is subject to approval by the holders of not less than three-fourths ( %,) of the insurer's outstanding capital stock having voting rights and by not less than twothirds ( 2;3) of the insurer's policyholders who vote on such plan in person, by proxy, or by mail pursuant to such notice and procedure as may be approved by the Commissioner;
(c) If a life insurer, the right to vote thereon is limited as provided in the bylaws;
(d) Mutualization will result in retirement of shares of the insurer's capital stock at a price not in excess of the fair market value thereof as determined by competent disinterested appraisers;
(e) The plan provides for the purchase of the shares of any nonconsenting stockholder in the same manner and subject to the same applicable conditions as provided by the general corporation laws of this State, as to rights of nonconsenting stockholders, with respect to consolidation or merger of private corporations;
(f) The plan provides for definite conditions to be fulfilled by a designated early date upon which such mutualization will be deemed effective; and
(g) The mutualization leaves the insurer with surplus funds reasonably adequate for the security of its policyholders and to enable it to continue successfully in business in the states in which it is then authorized to transact

277

DoMESTIC STocK, ETC.

56-1537

insurance, and for the kinds of insurance included in its certificate of authority in such states.
(3) This section shall not apply to mutualization under order of court pursuant to rehabilitation of an insurer under Chapter 56-14.
56-1537. Converting mutual insurer.-(1) A mutual insurer may become a stock insurer under such plan and procedure as may be approved by the Commissioner.
(2) The Commissioner shall not approve any such plan or procedure unless:
(a) It is equitable to the insurer's members;
(b) It is subject to approval by vote of not less than three-fourths (%) of the insurer's current members voting thereon in person, by proxy, or by mail at a meeting of members called for the purpose pursuant to ten (10) days' notice. and procedure as may be approved by the Commissioner;
(c) If a life insurer, the right to vote may be limited as the bylaws shall provide, to members whose policies are other than term or group policies, and have been in effect for more than one year;
(d) The equity of each policyholder in the insurer is determinable under a fair formula approved by the Commissioner, which such equity shall be based upon not less than the insurer's entire surplus (after deducting contributed or borrowed surplus funds) plus a reasonable present equity in its reserves and in all nonadmitted assets;
(e) The policyholder entitled to participate in the purchase of stock or distributing of assets shall include all current policyholders and all existing persons who had been a policyholder of the insurer within three years prior to the date such plan was submitted to the Commissioner;

56-1 538

DoMESTIC STocK, ETC.

278

(f) The plan gives to each policyholder of the insurer as specified in subsection (e)' above, a preemptive right to acquire his proportionate part of all of the proposed capital stock of the insurer, within a designated reasonable period, and to apply upon the purchase price thereof the amount of his equity in the insurer as determined in subsection (d) above;
(g) Shares are so offered to policyholders at a price not greater than to be thereafter offered to others, but at not more than double the par value of such shares;
(h) The plan provides for payment to each policyholder not electing to apply his equity in the insurer for or upon the purchase price of stock to which preemptively entitled, of cash in the amount of not less than fifty (50 o/c ) percent of the amount of his equity not so used for the purchase of stock, and which cash payment together with stock so purchased, if any, shall constitute full payment and discharge of the policyholder's equity as an owner of such mutual insurer; and
(i) The plan, when completed, would provide for the converted insurer paid-in capital stock in an amount not less than the minimum paid-in capital required of a domestic stock insurer transacting like kinds of insurance, together with surplus funds in amount required for such insurer under this Title.
56-1538. Bulk reinsurance by stock insurers.-(1) A domestic stock insurer may accept reinsurance for the same kinds of insurance and within the same limits as it is authorized to transact direct insurance, unless such reinsurance is prohibited by its charter.
(2) A domestic stock insurer may reinsure all or substantially all of its business in force, or substantially all of a major class thereof, with another insurer by an agreement of bulk insurance; but no such agreement shall become effective unless filed with and approved in writing by the Commissioner.

279

DoMESTIC STocK, ETC.

56-1540

(3) The Commissioner shall approve such agreements within sixty (60) days after such filing unless he finds that it is inequitable to the stockholders of the domestic insurer or would substantially reduce the protection or service to its policyholders. If the Commissioner does not approve the agreement, he shall so notify the insurer in writing specifying his reasons therefor.
56-1539. Bulk reinsurance by mutual insurers.-A domestic mutual company transacting insurance business under the laws of this State, with the approval of the Commissioner may reinsure all risks undertaken by it in any company authorized to transact a similar class of insurance business in this State and transfer to the company assuming such risks all or such of its assets, reserves, liabilities and obligations of every character as the agreement approved by the Commissioner shall provide.
This section shall not prevent such a company from reinsuring any risks or fractional parts thereof, not situated in this State, in any company licensed by the state in which such risks are located.
56-1540. Extinguishment of unused corporate charters. -(1) The corporate charter of any corporation formed under the laws of this State more than three years prior to the effective date of this Act for the purpose of becoming an insurer, and which corporation within such three year period has not actively engaged in business as a domestic insurer, is hereby extinguished and nullified.
(2) The corporate charter of any other corporation formed under the laws of this State for the purpose of becoming an insurer, and which corporation during any period of thirty-six (36) consecutive months after the effective date of this Act is not actively engaged in business as a domestic insurer under a certificate of authority issued to it by the Commissioner under laws currently in force, is automatically hereby extinguished and nullified at the expiration of such thirty-six (36) month period. Upon certification by the Commissioner of such facts un-

56-1541

DoME STIC STOCK, ETC.

280

der subsections (1) or (2) above to the Secretary of State, the Secretary of State shall enter an order extinguishing and nullifying such corporate charter.
(3) The period during which any such corporation referred to in subsection (2) above is the subject of delinquency proceedings under Chapter 56-14 shall not be counted as part of any such thirty-six (36) month period.
(4) Upon merger or consolidation of a domestic insurer with another insurer under this Chapter, the corporate charter of such merged or consolidated domestic insurer shall thereby automatically be extinguished and nullified.
56-1541. Mutual members' share of assets on liquidation.-(1) Upon any liquidation of a domestic mutual insurer, its assets remaining after discharge of its indebtedness, policy obligations, repayment of contributed or borrowed surplus, if any, and expenses of administration, shall be distributed to existing persons who were its members at any time within twelve (12) months next preceding the date such liquidation was authorized or ordered, or date of last termination of the insurer's certificate of authority, whichever date is the earlier; except that if the Commissioner has reason to believe that those in charge of the management of the insurer have caused or encouraged the reduction of the members of the insurer in anticipation of liquidation and for the purpose of reducing thereby the number of persons who may be entitled to share in distribution of the insurer's assets, he may enlarge the twelve (12) month qualification period above provided for by such additional period as he may deem to be reasonable.
(2) The distributive share of each such member shall be in the proportion that the aggregate premiums earned by the insurer on the policies of the member during the combined periods of his membership bear to the aggregate of all premium so earned on the policies of all such members. The insurer rna~, and if a life insurer shall, make

281

DoMESTIC STocK, ETC.

56-1543

reasonable classifications of its policies so held by such members, and a formula based upon such classification, for determining the equitable distributive shares of each such member. Such classification and formula shall be subject to the approval of the Commissioner.
56-1542. Commissions and limitation on organizational
expenses.-No officer, agent or other person selling or negotiating stock in any domestic insurance company shall receive either directly or indirectly more than ten
(10 o/c ) percent of the sales price of any of said stock. No
president, vice president, secretary, treasurer, or director or any other executive officer of any insurance company shall participate in the commission received by any person selling or negotiating the sale of any stock of any insurance company either directly or indirectly, nor shall any salaried officer of any insurance company participate in the commissions deriving from the sale of life insurance policies or agency contracts of such companies. The total expenses of organization of any insurer organized under this Chapter, including commissions for the sale of stock,
shall not exceed twelve and a half (12% o/c ) percent of
the amount for which the stock is sold in the case of a
stock insurer and twelve and a half (12% o/c ) percent of
the paid-in surplus in the case of a mutual insurer.
56-1543. Approval of issuance of stock of holding companies; denial of certificate of authority to insurers.-
Any corporation or other form of business entity, which is organized for the purpose of organizing or holding the stock of a domestic insurer, shall first obtain the written approval of the Commissioner prior to offering its stock for sale to the public. Prior to any such offer of stock for sale to the public a registration statement shall be filed with the Commissioner which shall contain the following information:
(1) Name and address of the main office of the issuer of the securities;
(2) Title of the securities and the total amount of th e securities to be offered;

56-1544 >

DOMESTIC STOCK, ETC.

282

(3) Price at which the securities are to be offered for sale to the public and the amount of such securities to be offered in this State;
(4) Maximum amount of commission or other form of remuneration to be paid in cash or otherwise, directly or indirectly, for or in connection with the sale or offering for sale of such securities;
(5) Date and place of organization of the issuer; form of organization of the issuer; and the general character and location of its business;
(6) A copy of any offering circular or prospectus to be used in connection with the offering;
(7) Any other information which the Commissioner may deem pertinent.
The Commissioner may make such investigation of any securities described in the registration statement filed with him as he may deem advisable to enable him to determine whether the sale of such securities would work or tend to work a fraud on the purchasers thereof. If the Commissioner finds from the information disclosed or in his possession that the sale of such securities would work or tend to work a fraud on purchasers thereof, he shall not approve such issue and sale of such securities in this State. The Commissioner shall not grant any domestic insurer, whose stock is held by such holding company which has not obtained approval of the issuance of its stock under this section, a certificate of authority to transact insurance in this State. Compliance with this section shall not dispense with the necessity of approval of such stock issue also by the Secretary of State, ex officio as Securities Commissioner, as now or hereafter may be required by law.
56-1544. Voluntary dissolution; procedure.- (1) If while a domestic stock or mutual insurer is fully solvent and it is deemed by its board of directors to be in the best

283

DoMESTIC STocK, ETC.

56-1544

interests of the insurer and its stockholders or members that the insurer should be dissolved, the board of directors shall adopt a resolution to that effect and call a special meeting of its stockholders or members to consider and take action upon the proposal to dissolve the insurer corporation. Such meeting shall be held upon not less than thirty (30) days' written notice to the stockholders or members in advance of the meeting, which notice shall contain a statement of the dissolution proposal. The notice shall be so given in the manner provided in the insurer's bylaws as for a special meeting of stockholders or members.
(2) If at such special meeting or any adjournment thereof the holders of record of stock entitled to exercise two-thirds of all the voting power on such proposal, or if a mutual insurer two-thirds of the insurer's members present or represented by proxy at such meeting, shall by resolution consent that the dissolution shall take place, ct. copy of such resolution together with a list of the names and residences of the directors and officers, certified by the president or a vice president and the secretary or an assistant secretary or the treasurer or an assistant treasurer of the insurer, shall be filed in triplicate with the application to surrender the charter required in section 56-1545, below, and one copy shall be filed for record in the office of the clerk of the superior court of the county in which the office or principal place of business of the insurer is located in this State.
(3) The effective date of the dissolution shall be the date of the issuance of the order by the Secretary of State accepting the surrender of the charter under section 561545.
(4) Whenever all the stockholders of record of a do- . mestic stock insurer, having power to vote on a proposal to dissolve, consent in writing to such dissolution, no meeting of the stockholders shall be necessary.
(5) No such dissolution shall be effected, however,

56-1545

DoMESTIC STocK, ETC.

284

until after the insurer has reinsured in another authorized insurer or has otherwise terminated all its insurance then in force; nor, in the case of a domestic mutual insurer, until after the proposed plan of dissolution together with the proposed plan for distribution of assets among the insurer's members has been filed with and approved by the Commissioner after having been found by him to be fair and equitable to the members thereof.
56-1545. Surrender of charter.-(1) Any insurance corporation chartered by the Secretary of State, including fraternal benefit societies, may surrender its charter upon the company filing in the office of the Secretary of State an application in triplicate, signed with its corporate name and under its corporate seal, stating:
(a) The name of the company and the location of its principal place of business in this State;
(b) The date of its charter and all amendments thereto, and the date (s) of renewal or renewals thereof;
(c) That it desires to surrender its charter and franchise to the State;
(d) A certificate, attested to by two officers of the company, that the procedure required by section 56-1544 has been carried out; and
(e) Any other information deemed necessary by the Secretary of State.
(2) Upon receipt thereof, the Secretary of State shall forward one copy thereof to the Commissioner, who shall take such action to investigate the proposed surrender to determine if the rights of policyholders, creditors, stockholders or members and third party claimants under liability policies of the insurer, have been paid, or properly provided for, in a fair and equitable manner. He shall, after making his determination, issue under his hand and official seal a certifi?ate approving or disapproving the

285

DoMESTIC STocK, ETC.

56-1547

application for surrender of the charter and shall transmit a copy of such certificate of approval to the Secretary of State. If he does not approve, the Commissioner shall notify the insurer, in writing, his reasons therefor.
(3) The fee and publication requirements as set out in section 56-1505 (1), (2) and (3) shall be applicable to a surrender of charter under this section.
(4) Upon receipt of the certificate of the ordinary as to the publication of the application and the certificate of approval of the surrender from the Commissioner, the Secretary of State shall issue, under the great seal of the State, an order accepting the surrender of the charter and franchises and dissolving the insurer, and the Secretary of State shall record the application, the certificate of the ordinary, the certificate of approval of the Commissioner and the order of surrender in a book to be kept by him for that purpose.
56-1546. Surrender of charter; directors to act as trus-
tees.-Upon the dissolution of a domestic stock or mutual insurer under section 56-1545, or upon the expiration of the period of its corporate existence in any other manner, except under Chapter 56-14, the directors of the corporation shall be trustees thereof with the full power to settle the affairs, collect the outstanding debts, sell and convey the property, real and personal, of the corporation, and divide its assets among its stockholders or members entitled thereto, after paying or adequately providing for the payment of its liabilities and obligations. Vacancies in the number of such directors may be filled by the remaining directors, but any director may be replaced on the vote of a majority of the stockholders, or members thereof, if a mutual insurer.
56-1547. Continuation for suit and winding up affairs.
-All domestic stock and mutual insurance corporations, whether they expire by their own limitation or are otherwise dissolved, shall nevertheless be continued for a term

56-1547

DoMESTIC SToc K, ETc.

286

of three years from such expiration or dissolution, except in any dissolution under Chapter 56-14, as bodies corporate for the purpose of prosecuting and defending suits by or against them and of enabling them to settle and close their business, to dispose of and convey their property, and to divide their assets among those entitled thereto, but not for the purpose of continuing business as insurers; Provided, however, that as to any action, suit or proceeding commenced by or against the corporation prior to such expiration or dissolution and with respect to any action, suit or proceeding commenced by or against the corporation within three years after the date of such expiration or dissolution, such corporation shall only for the purpose of such actions, suits or proceedings so commenced be continued as bodies corporate beyond such three year period and until any judgments, orders, or decrees therein be fully executed.
CHAPTER 56-16. INSIDER TRADING OF DOMESTIC STOCK INSURER EQUITY SECURITIES.
56-1601. Disclosure of equity securities ownership by certain persons of domestic stock insurers.
56-1602. Suits authorized to prevent the unfair use of information by certain persons.
56-1603. Short sales or sales against the box by certain persons made unlawful.
56-1604. Securities held by owners or h eld by dealers under certain conditions exempted.
56-1605. Foreign or domestic arbitrage transactions exempted under certain conditions.
56-1606. Term "equity security" defined for purposes of this Chapter.
56-1607. Insurer registered under section 12 of Securities Exchange Act of 1934, as amended, exempted.
56-1608. Commissioner authorized to make rules and regulations under this Chapter.
56-1601. Disclosure of equity securities ownership by certain persons of domestic stock insurers.-Every person who is directly or indirectly the beneficial owner of more

287

DoMESTIC STocK, ETC.

56-1602

than 10 per cent. of any class of any equity security of a domestic stock insurer, or who is a director or an officer of such insurer, shall file in the office of the Commissioner within 30 days of the effective date of this Chapter, or within 10 days after he becomes such beneficial owner, director or officer, if such event occurs after the effective date of this Chapter, a statement, in such form fl.S the Commissioner may prescribe, of the amount of all equity securities of such insurer of which he is the beneficial owner, and within 10 days after the close of each calendar month thereafter, if there has been a change in such ownership during such month, shall file in the office of the Commissioner a statement, in such form as the Commissioner may prescribe, indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month.
56-1602. Suits authorized to prevent the unfair use of
information by certain persons.-For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director or officer by reason of his relationship to such insurer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such insurer within any period of less than six months, unless such security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the insurer, irrespective of any intention on the part of such beneficial owner, director or officer in entering into such transaction of holding the security purchased or of not repurchasing the security sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the insurer, or by the owner of any security of the insurer in the name and in behalf of the insurer if the insurer shall fail or refuse to bring such suit within 60 days after request or shall fail diligently to prosecute the same thereafter; but no such suit shall be brought more than two years after the date such profit was realized. This section shall not be construed to cover any transaction where such beneficial owner was not such

56-1603

DoMESTIC STocK, ETC.

288

both at the time of the purchase and sale, or the sale and purchase, of the security involved, or any transaction or transactions which the Commissioner by rules and re'gulations may exempt as not comprehended within the purpose of this section.
56-1603. Short sales or sales against the box by certain persons made unlawful.-It shall be unlawful for any benefical owner, director or officer, directly or indirectly, to sell any equity security of such insurer if the person selling the security or his principal (i) does not own the security sold, or (ii) if owning the security does not deliver it against such sale within 20 days thereafter, or does not within five days after such sale deposit it in the mails or other usual channels of transportation; but no person shall be deemed to have violated this section if he proves that notwithstanding the exercise of good faith he was unable to make such delivery or deposit within such time, or that to do so would cause undue inconvenience or expense.
56-1604. Securities held by owners or held by dealers under certain conditions exempted.-The provisions of section 56-1602 shall not apply to any purchase and sale, or sale and purchase, and the provisions of section 561603 shall not apply to any sale of any equity security of a domestic stock insurer not then or theretofore held by him in an investment account, by a dealer in the ordinary course of his business and incident to the establishment or maintenance by him of a primary or secondary market (otherwise than on an exchange as defined in the Securities Exchange Act of 1934) for such security. The Commissioner may, by such rules and regulations as he deems necessary or appropriate in the public interest, define and prescribe terms and conditions with respect to securities held in an investment account and transactions made in the ordinary course of business and incident to the establishment or maintenance of a primary or secondary market.
56-1605. Foreign or domestic arbitrage transactions exempted under certain conditions.-The provisions of sections 56-1601, 56-1602, and 56-1603 shall not apply to foreign or domestic arbitrage transactions unless made

289

HosPITAL NoNPROFIT CoRPORATIONS

56-1608

in contravention of such rules and regulations as the Commissioner may adopt in order to carry out the purposes of this Chapter.
56-1606. Term "equity security" defined for purposes of this Chapter.-The term "equity security" when used in this Chapter means any stock or similar security; or any security convertible, with or without consideration, into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right; or any other security which the Commissioner shall deem to be of similar nature and consider necessary or appropriate, by such rules and regulations as he may prescribe in the public interest or for the protection of investors, to treat as an equity security.
56-1607. Insurer registered under section 12 of Securities Exchange Act of 1934, as amended, exempted.-The provisions of sections 56-1601, 56-1602, and 56-1603 shall not apply to equity securities of a domestic stock insurer if such securities shall be registered pursuant to section 12 of the Securities Exchange Act of 1934, as amended.
56-1608. Commissioner authorized to make rules and regulations under this Chapter.-The Commissioner shall have the power to make such reasonable rules and regulations as may be necessary for the execution of the functions vested in him by sections 56-1601 through 56-1607, and may for such purpose classify domestic stock insurers, securities, and other persons or matters within his jurisdiction. No provision of sections 56-1601, 56-1602, and 561603 imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule or regulation of the Commissioner, notwithstanding that such rule or regulation may, after such act or omission, be amended or rescinded or determined by judicial or other authority to be invalid for any reason.
CHAPTER 56-17
HOSPITAL SERVICE NONPROFIT CORPORATIONS.
56-1701. Incorporation. 56-1702. Application for membership.

56-1701

HosPITAL N o N P ROFIT CoR PORATIO NS

290

56-1703. Corporations insurance companies; no bond or deposit required.
56-1704. Corporations to be nonprofit organizations. 56-1705. Authority of corporations to contract. 56-1706. Extension of service. 56-1707. Limitation upon authority to contract and op-
erate. 56-1708. Provision against attempting to control relations
between patient and physician. 56-1709. Personnel of directors. 56-1710. Supervision of rates by Commissioner. 56-1711. Approval of rates. 56-1712. Membership certificates. 56-1713. Bond of treasurer; deposit of funds. 56-1714. Finance procedure. 56-1715. Investments. 56-1716. Reports to Commissioner. 56-1717. Examination of books and records. 56-1718. Definition as charitable and benevolent institu-
tions. 56-1719. Expense of examination and supervision. 56-1720. Dissolution. 56-1721. Chapter to govern pre-existing nonprofit hos-
pital service corporations.
56-1701. lncorporation.-Any five or more persons upon petition to the Secretary of State for a corporate charter, as provided in sections 56-1504 (2) (3) (a) (b) (c) (g) (h) (k) (1), 56-1505 and 56-1506, may be incorporated for the purpose of establishing, maintaining and operating a nonprofit hospital service plan whereby hospital care may be provided by said corporation through an established licensed hospital or licensed hospitals with which it has contracted for such care, as is hereinafter defined.
56-1702. Application for membership.-Such corporations when organized shall be authorized to accept applicants, who may become members of said corporations furnishing group hospital service under a contract, which shall entitle each member to such hospital care for such period of time as is provided therein.

291

HosPITAL NoNPROFIT CoRPORATIONS

56-1706

56-1703. Corporations insurance companies; no bond or deposit required.-Such corporations shall be governed by this Chapter. Such corporations organized and operated under the provisions of this Chapter shall not be required by any department of this State to post bond, or put up deposits with any department of this State tQ begin and/ or operate under this Chapter, and the deposit provisions of Chapters 56-3 and 56-11 and the fee and tax provisions of Chapter 56-13 are hereby declared inapplicable to corporations organized and/ or operated under this Chapter.
56-1704. Corporations to be nonprofit organizations.Such corporations shall be governed and conducted as nonprofit organizations, for the purpose of offering and furnishing hospital service to their members in consideration of the payment by such members of a definite sum for the hospital care so contracted to be furnished. In order to implement the distribution of voluntary health care to the people of this State, such corporations may, at their discretion, act as agent for surgical and/or medical service plans operating in this State, providing that contractual arrangements for such service be first approved by the Commissioner. The necessary expenses of administering the affairs of said corporations may be paid from the dues or payments collected.
56-1705. Authority of corporations to contract.-Such corporations shall have the authority to contract with hospitals charging for services rendering, in such manner as to assure to each person holding a contract of said corporation the furnishing of such hospital care as may be agreed upon in the contract between said hospital and said member, with the right of said corporation to limit in said contract the type of diseases for which it shall furnish or pay for hospital care in any hospital. Hospitals so contracted with shall be known as participating hospitals.
56-1706. Extension of service.-All membership contracts issued by such corporations shall contain a provision; to be first approved by the Commissioner, which

56-1707

HosPITAL NoNPROFIT CoRPORATIONS

292

shall permit the person with whom made, and all persons entitled to hospital service thereunder, the right to receive hospitalization either in ordinary or in emergency cases, at any nonparticipating licensed general medical hospital selected by such person which has been approved according to this Chapter; and such hospital shall be paid by said corporation a charge or rate for hospital service, not to exceed the rate provided for in contracts of said hospital service corporation for nonparticipating hospitals. This section shall not restrict the right of such corporations, in their discretion, to extend this same rate to persons entitled to hospital service in nonparticipating hospitals other than general medical hospitals.
56-1707. Limitation upon authority to contract and operate.-Said corporations shall have authority to contract with only hospitals licensed by the State Board of Health of Georgia.
56-1708. Provision against attempting to control relations between patient and physician.-Such corporations shall not control or attempt to control the relationship existing between the member and his physician and shall not restrict the right of the patient to obtain the service of any licensed doctor of medicine; and any hospital which shall contract with such corporation for the furnishing of hospital care, shall accept a member or subscriber of such corporation with the physician of his choice in charge of his treatment at such hospital, provided such acceptance is inconformity with the hospital's regular rules of admission, and further provided that such physician is otherwise acceptable for practice in said hospital.
56-1709. Personnel of directors.-At least a majority of the directors of such corporation must be at all times directors, superintendents, or trustees of hospitals, as herein defined, which have contracted or may contract with such corporation to render its subscribers hospital service.
56-1710. Supervision of rates by Commissioner.-Such corporations shall before accepting applications for mem-

293

HosPITAL NoNPROFIT CoRPORATIONS

56-1714

bership in said nonprofit hospital service plan, submit to the Commissioner a plan of operation and overhead expenses, operation cost, salaries paid or to be paid during any current year, together with a schedule of its rates or dues to be charged and the amount of hospital service contracted to be rendered; which plan, rates and amounts of service shall first be approved by the Commissioner as fair and reasonable before said corporation shall engage in business.
56-1711. Approval of rates.-The Commissioner shall likewise first approve the rates of payment to be made by said corporations to hospitals for the rendering of hospital care to the members of said corporation as being fair and reasonable. Said hospitals shall guarantee the benefits of the certificates of membership issued by the corporation in such a way as will be satisfactory to the Commissioner.
56-1712. Membership certificates.-Every such corporation shall issue to its members certificates of membership which shall set forth the contract between the corporation and the member, and give the name or names and location of hospital or hospitals with which the corporation has contracted for service to its members, and the period of such service; and the rate per day or week payable by said corporation for hospital service rendered to said member at any hospital other than the hospitals with which said corporation shall be contracted.
56-1713. Bond of treasurer; deposit of funds.-The treasurer of such corporation and other officers and employees who handle its funds shall be required to give a fidelity bond with corporate surety in such sum as may be determined by the officers of said corporation for the faithful handling of the funds of said corporation; and all funds collected from members or subscribers of said corporation shall be deposited to the account of said corporation in a bank which is a State depository.
56-1714. Finance procedure.-Said corporations shall not pay any of the funds collected from members or sub-

. 56-1715

HosPITAL NoN PROFIT CoRPORATIONS

294

scribers to any hospital until after said hospital shall have rendered hospital care to a subscriber or member.
56-1715. lnvestments.-The funds of any corporations subject to the provisions of this Chapter shall be invested only in securities permitted by the laws of the State of Georgia for the investment of assets of life insurance companies.
56-1716. Reports to Commissioner.-Every such corporation shall annually, on or before March 1st, file in the office of the Commissioner a statement verified by at least two of the principal officers of said corporations, showing its condition on December 31st, next preceding, which statement shall be in such form and shall contain such matters as the Commissioner shall prescribe.
56-1717. Examination of books and records.-Every such corporation shall keep complete books and records, showing all funds collected and disbursed, and all books and records shall be subject to examination by the Commissioner annually, the expense of such examination to be borne by said corporation.
56-1718. Definition as charitable and benevolent institutions.-Every corporation subject to the provisions of this Chapter is hereby declared to be a charitable and benevolent institution and shall be exempt from all taxes as such charitable and benevolent institutions are now or may hereafter be exempt from taxes.
56-1719. Expense of examination and supervision.Any and all supervision, liquidation or examination of the affairs of any such corporation by the Commissioner shall be at the expense of such corporation.
56-1720. Dissolution.-Any dissolution or liquidation of any such corporation subject to the provisions of this Chapter shall be under the supervision of the Commissioner. In case of dissolution of any corporation formed under the provisions of thiS' Chapter, the claims of mem-

295

NoNPROFIT MEDICAL CoRPORATIONs

56-1721

bership certificate holders of such corporation shall be given priority over all other claims except cost of liquidation. Next priority shall be given to claims of contracting hospitals for losses or write-offs shown by the corporation's records to have been incurred by said contracting hospitals in furnishing service to membership certificate holders. Any remaining funds may be distributed only in a manner consistent with the purposes of the charte; and bylaws of such corporation.
56-1721. Chapter to govern pre-existing nonprofit hospital service corporations.-All corporations organized and operating as nonprofit hospital service corporations in the State of Georgia at the time of the enactment of this Chapter shall be deemed nonprofit hospital service corporations existing and operating under and subject to the provisions of this Chapter.
CHAPTER 56-18
NONPROFIT MEDICAL SERVICE CORPORATIONS.
56-1801. Declaration of public policy; liberal construction of Chapter.
56-1802. Definitions. 56-1803. Corporations to provide medical service. 56-1804. Corporations to be nonprofit organizations; ad-
ministration expenses. 56-1805. Incorporation. 56-1806. Organization; board of directors; qualifica-
tions, number, compensation. 56-1807. Persons authorized to write medical service
plan contracts. 56-1808. Membership in corporation; applications. 56-1809. Membership in corporation; limitation of serv-
ice. 56-1810. Authority of corporation to contract. 56-1811. Limitation upon authority. 56-1812. Membership certificates; contents, form, sub-
stance. 56-1813. Prohibition against corporate practice of medi-
cine.

56-1801

NoNPROFIT MEDICAL CoRPORATIONS

296

56-1814. All licensed doctors may participate in corporation.
56-1815. Acquisition and administrative expenses. 56-1816. Bond of treasurer. 56-1817. Investments. 56-1818. Reserves to be maintained for unearned sub-
scription fees, etc.; rate annually. 56-1819. Funds collected not payable to physicians until
services performed. 56-1820. Corporations regulated by Commissioner; bond
or deposit not required. 56-1821. Supervision of rates. 56-1822. Approval of rates. 56-1823. Certificl:1-te of authorization; application, con-
tents. 56-1824. Certificate of authorization; when issued. 56-1825. Examination of books and records; expense of
examination. 56-1826. Annual report to Commissioner. 56-1827. Certificate of authorization; annual renewal,
revocation; notice of hearing. 56-1828. Soliciting agents; improperly solicited subscrip-
tion certificates. 56-1829. Review of disputes. 56-1830. Definition as charitable and benevolent institu-
tions. 56-1831. Dissolution.
56-1801. Declaration of public policy; liberal construction of Chapter.-(1) It is declared to be the public policy of this State to conserve its human resources by making available to all its citizens medical and surgical care in keeping with modern scientific practices in the field of medicine, and to this end this law is enacted.
(2) This Chapter shall be construed liberally to promote its humanitarian purposes.
56-1802. Definitions.-As used in this Chapter, the following terms have the meanings respectively assigned to them unless the context otherwise plainly requires:

297

NoNPROFIT M EDICAL CoRPORATIONS

56-1802

( 1) "Medical service corporation" means a corporation organized without capital stock and not for profit, and incorporated in accordance with section 56-1805, specifically for the purpose of establishing, maintaining and operating a nonprofit medical service plan.
(2) "Medical service plan" means a plan or arrangement under which "medical services" are or may be rendered to a subscriber, a covered dependent or other beneficiary by a licensed physician and surgeon and under which "additional services and supplies" are or may be rendered to a subscriber, a covered dependent or other beneficiary by another person or persons at the expense of a medical service corporation, as defined herein, in consideration of periodical payments made by the subscriber or another in his behalf prior to the occurrence of the condition calling for the rendition of medical or surgical services or additional services and supplies.
(3) "Medical services" means the general and usual services and care rendered and administered by doctors of medicine and doctors of dental surgery. It shall not include hospital service.
(4) "Additional services and supplies" means private duty nursing care and licensed practical nursing care; physiotherapy; local ambulance service ; drugs and medications outside of the hospital; therapeutic services and equipment, including oxygen, the rental of oxygen equipment, hospital beds and iron lungs; orthopedic services and appliances, including wheelchairs, trusses, braces, crutches, and prosthetic devices, including artificial limbs and eyes. Nonprofit medical service corporations are authorized to purchase, rent, contract for, or otherwise compensate for such additional services and supplies, and reimbursement may be made either directly to those furnishing such additional services and supplies or to the subscriber or member. Such additional services and supplies shall not include hospital services.
(5) "Subscriber" and "member" means a person to whom a subscription certificate is issued by a medical

56-1803

HosPITAL NoNPROFIT CoRPORATIONs

298

service corporation which sets forth the kinds and extent of the medical services for which the corporation is liable to make payment.
(6) "Beneficiary" and "covered dependent" means a person designated in the subscription contract, or application therefor, as entitled to the medical services referred to in subsection (5) of this section, with respect to whom appropriate dues are specified in writing between the corporation and the member holding such certificate.
(7) "Participating physician" means a doctor of medicine licensed to practice medicine and surgery in this State, and a dental surgeon licensed to practice dental surgery in this State, who agrees in writing, with a medical service corporation to perform the medical services specified in the subscription certificates issued by the corporation, and at ,such rates of compensation as shall be determined by the board of directors of the corporation, and who agrees to abide by the bylaws, rules and regulations of the corporation applicable to participating physicians.
(8) "Commissioner" means the Insurance Commissioner of the State of Georgia.
(9) "Person" includes a natural person, a copartnership, an association, a common law trust or a corporation.
(10) The personal pronoun as used in this Chapter, except where otherwise clearly indicated, shall import masculine, feminine or neuter gender.
56-1803. Corporations to provide medical service.Corporations contemplated by thi::? Chapter may be incorporated for the purpose of establishing, maintaining, and operating a nonprofit medical service plan under which medical or surgical care, or both, may be rendered by licensed doctors of medicine with whom any such corporation has contracted for such medical or surgical care, as herein defined.

< 299

NoNPROFIT MEDICAL CoRPORATIONS

56-1806

56-1804. Corporations to be nonprofit organizations; administration expenses.-Such corporations shall be governed and conducted as nonprofit organizations for the sole purpose of offering and furnishing a medical service plan or plans to its members, beneficiaries and covered dependents in consideration of the payment by such members or other persons of a definite sum for the medical or surgical care, or both, so contracted to be furnished : Provided, however, the necessary expense of administering the affairs of said corporation may be paid from the dues or payments collected.
56-1805. Incorporation.- Corporations contemplated by this Chapter shall be chartered and organized as nonprofit corporations in the manner prescribed by sections 56-1504 (2) (3) (a) (b) (c) (g) (h) (k) (l), 56-1505 and 56-1506, with such modifications only as are set forth in this Chapter.
56-1806. Organization; board of directors; qualifications, number, compensation.-The business of such corporations shall be managed by a board of directors of three or more persons, the majority of whom, at all times, shall be licensed doctors of medicine, and elected by the members and for such terms as may be provided by the bylaws: Provided, however, if such corporations shall operate in as many as six counties of this State, its board of directors shall consist of not less than five persons, and, if such corporations shall operate in as many as fifteen (15) or more counties of this State, its board of directors shall consist of not less than seven persons. The medical members of the board shall be nominated by the medical societies in the county or counties in which the corporation shall operate and the other members of the board shall be representatives of the subscribers of the areas involved and shall be nominated by the members of the corporation, and all members of the board shall be elected by the members of the corporation as herein provided. Directors shall serve without pay for their work in this capacity; however, they may receive pay for particular services actually rendered, such as legal counsel, medical or sur-

56-1807

NoNPROFIT M EDICAL CoRPORATIONs

300

gical service, accounting or other required services, upon specific approval of the board of directors, such approval being made a part of the minutes of the board of directors, except a director shall have no vote on any matter in which he has a financial interest.
56-1807. Persons authorized to write medical service plan contracts.-It shall be unlawful for any person except a medical service corporation (incorporated in accordance with the provisions of this Chapter and operating in accordance with authority from the Commissioner) to establish, maintain, or operate a medical service plan, or to solicit subscribers to or enter into contracts with respect to a medical service plan: Provided, such corporations, with the approval of the Commissioner, may enter into an agency contract with any licensed nonprofit hospital service corporation: and, Provided further, nothing in this Chapter shall be construed as preventing a person from furnishing medical services for the prevention of disease among his employees or from furnishing such medical services as are required under the workmen's compensation or other laws of this State, or as preventing any duly licensed insurance company from writing medical indemnity insurance.
56-1808. Membership in corporation; applications.Corporations when organized shall be authorized to accept applicants individually or in groups who may become members of said corporation furnishing medical or surgical care, or both, under a contract which shall entitle each member, beneficiary, and covered dependent to such medical or surgical care, or both, for such period of time as is provid ed therein; and such corporations shall be governed by this Chapter.
56-1809. Membership in corporation; limitation of service.-Each corporation shall be authorized to accept applications for membership and to issue contracts only to persons residing in counties in which the medical service plan of such corporation shall have been approved by the county medical society of such county. In the event

301

NoNPROFIT MEDICAL CoRPORATIONS

56-1812

there is no medical society in the particular county con-

cerned, approval by the medical society in an adjoining

eounty will be considered sufficient.



56-1810. Authority of corporations to contract.-Corporations shall have the authority to contract with physicians, for payment of services rendered, in such manner as to assure to each person holding a contract of said corporation the furnishing of such medical or surgical care, or both, as may be agreed upon in the contract of said corporation, with the right of said corporation to limit in said contract the types of diseases and conditions for which it shall furnish medical or surgical care, or both.

56-1811. Limitation upon authority. - Corporations shall have authority to contract with only licensed doctors of medicine: Provided, however, that all contracts issued by such corporations to members shall contain a provision, to be first approved by the Commissioner, which shall permit the persons with whom made, and all persons entitled to medical .service thereunder, the right to receive such service, either in ordinary or emergency cases, from any licensed doctor of medicine selected by such person, and that such doctor of medicine will be paid by such corporation an amount provided for in the contract of such corporation for nonparticipating licensed doctors of medicine.

56-1812. Membership certificates; contents, form, substance.-Every such corporation shall issue to its members eertificates of membership, which shall set forth the contract between the corporation and the member, and specify how the holder of such contract may obtain the name or names and addresses of the physicians upon whom the member shall have the right to call for medical or surgical care, or both, and the nature of such services. Such certificate shall be consistent with this Chapter and the purposes thereof. It shall contain no unnecessary or rigid restriction, limitation or exclusion. It shall be prepared with the greatest possible degree of clearness, and in such a way as not to mislead the holder. Its form, size

56-181 3

N o NPROFIT M EDICAL CoRPORATIONS

302

of type, general arrangement, and contents shall be subject to the approval of the Commissioner and shall be filed with and approved by him, before being issued in this State.
56-1813. Prohibition against corporate practice of medicine.-Such corporations shall have the right to sell contracts providing for the payment of specified charges made by physicians furnishing medical or surgical care, or both, to the holders of such contracts, their beneficiaries and covered dependents as herein provided for. Such contracts shall not in any manner restrict the right of the holder to obtain the services of any licensed doctor of medicine nor shall such contracts attempt to control the relation existing between any holder or beneficiary of any such contract and his physician. Such corporations shall impose no restriction on the doctors of medicine who treat its subscribers as to the methods of diagnosis or treatment. The private physician-patient relationship shall be maintained, and a subscriber shall at all times have free choice of any doctor of medicine who is a participating physician in the corporation and who agrees to accept a particular beneficiary as a patient.
It is the purpose of this section to make it clear that the creation of the relationship of patient and physician depends upon the mutual assent of both parties. Contracts issued by the corporation to the subscribers shall not constitute individually or jointly obligations of the participating physician or physicians servicing the plan.
No provision of this Chapter shall be construed as authorizing the corporate practice of medicine; and such corporations shall not practice medicine. No physician rendering service or called on to render service to a member, beneficiary, or covered dependent shall be construed to be an agent or employee of such corporation and such corporation shall not be liable for the negligence, misfeasance, malfeasance, nonfeasance or malpractice of any physician rendering medical or surgical services to any such member, beneficiary or covered dependent.

303

NoNPROFIT MEDICAL CoRPORATIONs

56-1818

56-1814. All licensed doctors may participate in corporations.-Every doctor of medicine licensed to practice in this State and who is reputable and in good standing, shall have the right to become a participating physician in the corporation operating in the county in which he resides or practices, for medical or surgical care, or both, as the case may be, under such terms and conditions as' are imposed on other participating physicians under similar circumstances, or as prescribed in this Chapter and approved by the Commissioner.
56-1815. Acquisition and administrative expenses.All acquisition and administrative expenses incurred in connection with such corporations shall at all times be subject to the approval of the Commissioner. The term "administrative expenses" as used in this section shall include all expenditures except payment for subscribers' claims. Claim service expense shall be separately classified and included in administrative expense, unless otherwise ordered by the Commissioner.
56-1816. Bond of treasurer.-The treasurer of. such corporation shall be required to give a fidelitybond with corporate surety in such sum as may be determined by the officers of said corporation and all funds collected from the members or subscribers of said corporation shall be deposited to the account of said corporation in a bank which is a State depository.
56-1817. lnvestments.-The funds of such corporation shall be invested only in securities permitted by the laws of the State of Georgia for the investment of assets of insurance companies.
56-1818. Reserves to be maintained for unearned subscription fees, etc.; rate annually.-Every such corporation shall maintain at all times proper reserves, subject to the approval of the Commissioner, for unearned subscription fees and unearned premiums, and for unpaid medical service bills, including provision for unreported and undischarged medical cases and other known liabili-

56-1819

NoNPROFIT MEDICAL CoRPORATIONS

304

ties. In addition, a contingency or epidemic reserve shall be accumulated annually at the rate of not less than two and one-half (2% % ) percent of net premium income. When such contingency or epidemic reserve equal seven-
ty-five thousand ( $75,000) dollars or fifty-five (55 y( )
percent of the annual premium income (whichever is higher), further accumulations may be discontinued for any length of time that they are not required to meet the above requirements.
56-1819. Funds collected not payable to physicians or
other persons until services performed.-Said corporations shall not pay any of the funds collected from the members or subscrit>ers to any physicians for medical or dental services or to any other person or persons for additional services and supplies until after said physician or such other person or persons shall have rendered the necessary medical or surgical care or furnished the necessary additional services and supplies, any or all, as the case may be, to such subscriber or member.
56-1820. Corporations regulated by Commissioner;
bond, deposit, fees or taxes not required.-Such corporations shall be subject to regulation and supervision by the Commissioner: Provided, any such corporation shall not be required by any department of this State to post bond or place deposits with any department of this State to begin business or to operate under this Chapter, nor shall any such corporation be required to pay the fees or taxes provided by Chapter 56-13.
56-1821. Supervision of rates. - Such corporations shall, before accepting applications for membership in said nonprofit medical service plan, submit to the Commissioner a plan of operating and overhead expenses, operation cost, salaries, paid or to be paid during any current year, together with a schedule of its rates or dues to be charged and the amount of medical and surgical service contracted to be rendered ; which plan, rates and amount of service shall first be approved by the Commissioner as fair and reasonable before said corporation shall engage in business.

305

N oNPROFIT MEDICAL CoRPORATIONs

56-1823

56-1822. Approval of rates.-The Commissioner shall likewise first approve the rates of payment to be made by said corpor.ations to physicians for the rendering of medical or surgical care, or both, on behalf of said corporation, its members, beneficiaries, and covered dependents, as being fair and reasonable.
56-1823. Certificate of authorization; application, contents.-A corporation subject to the provisions of this Chapter may issue contracts when the Commissioner has authorized it to do so. Every application for such certificate of authorization shall be accompanied by copies of the following documents:
( 1) A certified copy of its charter or certificate of incorporation.
(2) A copy of its bylaws, certified by the lawful custodian of the original.
(3) Proposed contracts between the corporation and the participating physicians showing terms under which medical service is to be furnished to subscribers.
(4) Subscription contracts to be issued to subscribers showing a table of the rates to be charged and the benefits to which they are entitled, showing benefits expressed in service and in dollars. Such contracts shall make clear that the responsibility for service to the subscribers rests with the corporation, and not with the participating physicians.
(5) A statement of the county or counties in which it proposes to operate medical service plans.
(6) A statement of its financial condition and business in such form and detail as the Commissioner may require, including the amounts of contributions paid for working capital and the name or names of each contributor, and the terms of such contributions, signed and sworn to by its president and secretary, or other proper officers. Con-

56-1824

NoNPROF IT M E DICAL CoRPORATIONS

< 306

tributions not paid, but agreed to be paid, may be reported as a separate item, but shall not be admitted as assets of the corporation.
56-1824. Certificate of authorization; when issued.The Commissioner shall issue a certificate of authorization upon compliance with this Chapter, and other proper requirements of the Commissioner, and upon being satisfied upon the following points:
( 1) That all items required to be filed are in proper form and meet the approval of the Commissioner.
(2) That the applicant is established as a bona fide medical service corporation, that the services rendered by such corporation are not an unnecessary duplication of similar services in the community served, are desirable for public necessity and convenience, and that a fair opportunity has been given to all practicing physicians of standing in the area to be served to become participating physicians.
(3) That the solicitation of contracts by the corporation and its conditions or methods of operation are fair and reasonable.
(4) That the rates charged are fair, reasonable, adequate and not unfairly discriminatory, that benefits to be provided are fair, reasonable and not unfairly discriminatory. The rates may differ between subscribers in recognized groups and individual subscribers not in groups, all subject to the approval of the Commissioner.
(5) That the amount of money actually available for working capital is sufficient to carry all acquisition costs and operating expenses for a period of at least six months from the date of the issuance of the certificates.
(6) That the amount provided as working capital shall only be provided by individuals or groups who have no financial interest in the activities of such medical service

307 '

NoNPROFIT MEDICAL CoRPORATIONS

56-1827

corporation, or by the participating physicians. Interest charged therefor, if any, shall not exceed six (6%- ) percent per annum and payment of interest, if any, and repayment of such working capital shall be permitted only after provision has been adequately made for operating expenses, payments to participating physicians for medical and surgical services, and the establishment of legal reserves and such other reserves as may be required by the Commissioner.
(7) That a provision has been made in the subscription contract authorizing medical and surgical services by other than participating physicians, in which case money benefits shall be provided, as specified in the subscription contract and approved as fair by the Commissioner. Such certificate of authority issued by the Commissioner to operate a medical service plan or plans will be limited by the Commissioner to the contracts and practices approved by him.
56-1825. Examination of books and records; expense of examination.-Every such corporation shall keep,complete books and records, showing all funds collected and disbursed, and all books and records shall be subject to examination by the Commissioner annually, the expense of such examination to be borne by said corporation.
56-1826. Annual report to Commissioner.-Every such corporation shall annually on or before March 1st file in the office of the Commissioner a statement verified by at least two of the principal officers of said corporation, showing its condition on December 31st, then next preceding, which statement shall be in such form and shall contain such information as the Commissioner shall prescribe.
56-1827. Certificate of authorization; annual renewal, revocation; notice of hearing.-The certificate of authorization referred to in section 56-1823 shall be applied for and renewed annually by the Commissioner, except on such application such corporation shall not be required to furnish documents set forth in section 56-1823. He shall

56-1828

NoNPROF IT M E DICAL CoRPORATIONS

308

not renew such certificate, and shall be authorized to revoke an existing one, upon the failure of the corporation to comply with the provisions of this law. Due notice and opportunity to be heard on the question of refusing to renew a certificate of authorization or the revocation of an existing one shall first be given by the Commissioner.
56-1828. Soliciting agents; improperly solicited subscription certificates.-Whenever the Commissioner finds, after investigation, that an organizer, solicitor, or agent of such corporation has unfairly or improperly solicited subscription certificates by misrepresenting the terms thereof or has engaged in any other unfair or deceptive practice, or for any reason is incompetent to serve as such organizer, agent, or solicitor, or that his services are not, in fact, needed, he shall order such corporation to dispense with such services.
56-1829. Review of disputes.-Any dispute arising within the purview of this Chapter with reference to the regulation and supervision, or either of them, of any such corporation shall, within thirty (30) days after such dispute arises, be submitted by the aggrieved person to the Commissioner for his decision with reference thereto: Provided, nothing herein shall authorize or require the Commissioner to determine the contractual rights between the parties interested in any such corporations. After proper notice and hearing, any decision and order of the Commissioner made pursuant to the provisions of this Chapter, shall be binding on the persons involved, unless set aside on review as herein provided. A review of any such decision or order made by the Commissioner may be had in the Superior Court of Fulton County, Georgia, upon a writ of certiorari. Application for such writ shall be made within thirty (30) days of such decision or order.
56-1830. Definition as charitable and benevolent institutions.-Every corporation subject to the provisions of this Chapter is hereby declared to be a charitable and benevolent institution and shall be exempt from all taxes as such charitable and benevolent institutions are now or

309

FRATE RNAL BENE FIT Soc iETIE S

56-1831

may hereafter be exempt from taxes. Any and all supervision, liquidation or examination of the affairs of any such corporation by the Commissioner shall be at the expense of such corporation.
56-1831. Dissolution.-Any dissolution or liquidation of any such corporation subject to the provisions of this Chapter shall be under the supervision of the Commissioner. In case of dissolution of any such corporation formed under the provisions of this Chapter, claims of certificate holders of such corporation shall be given priority over all other claims except cost of liquidation. Any assets remaining after satisfaction of all claims of certificate holders and payments of all costs of liquidation, may be used only to carry out the original purposes for which such corporation was chartered.

CHAPTER 56-19

FRATERNAL BENEFIT SOCIETIES.

56-1901. 56-1902. 56-1903. 56-1904. 56-1905. 56-1906.
56-1907. 56-1908. 56-1909.
56-1910. 56-1911. 56-1912. 56-1913.
56-1914. 56-1915. 56-1916. 56-1917.

Fraternal benefit societies defined. Lodge system defined. Representative form of government defined. Organization. Corporate powers retained. Existing voluntary associations; may incorporate. Location of office; place of meeting. Consolidations and mergers. Conversion of fraternal benefit society into mutual life insurance company. Qualifications for membership. Charter, constitution and laws; amendments. Institutions. Payments of benefits other than insurance benefits. No personal liability. Benefits. Benefits on lives of children. Nonforfeiture benefits, cash surrender valu es, certificate loans and other options.

56-1901

FRATERNAL BENEFIT SociETIES

310

56-1918. Beneficiaries. 56-1919. Benefits not attachable. 56-1920. The contract. 56-1921. Provisions; standard and prohibited. 56-1922. Accident and sickness insurance and total and
permanent disability insurance certificates; filing and approval. 56-1923. Waiver. 56-1924. Reinsurance. 56-1925. Annuallicense. 56-1926. Foreign or alien society; admission. 56-1927. Injunction; liquidation; receivership of domestic society. 56-1928. Suspension, revocation or refusal of license of foreign or alien society. 56-1929. Licensing of agents. 56-1930. Service of process.
56-1931. Injunction. 56-1932. Review. 56-1933. Funds. 56-1934. Investments. 56-1935. Reports and valuation. 56-1936. Examinations of domestic societies. 56-1937. Examinations of foreign and alien societies. 56-1938. No adverse publications. 56-1939. Misrepresentation. 56-1940. Discrimination and rebates. 56-1941. Taxation. 56-1942. Exemptions. 56-1943. Exemption of certain societies. 56-1944. Penalties. 56-1945. Severability.
56-1901. Fraternal benefits societies defined.-Any incorporated society, order or supreme lodge, without capital stock, including one exempted under the provisions of section 56-1943 (b) whether incorporated or not, conducted solely for the benefit of its members and their beneficiaries and not for profit, operated on a lodge system with ritualistic form of work, having a representative form of government, and which makes provision for the

3 11

FRATERNAL BENEFIT SociETIES

56-1903

payment of benefits in accordance with this Chapter, is hereby declared to be a fraternal benefit society.
When used in this Chapter the word "society," unless otherwise indicated, shall mean fraternal benefit society.
56-1902. Lodge system defined.-A society having a supreme legislative or governing body and subordinate lodges or branches by whatever name known, into which members are elected, initiated or admitted in accordance with its constitution, laws, ritual and rules, which subordinate lodges or branches shall be required by the laws of the society to hold regular meetings at least once in each month, shall be deemed to be operating on the lodge system.
56-1903. Representative form of government defined. -A society shall be deemed to have a representative form of government when:
(1) It provides in its constitution or laws for a supreme legislative or governing body, composed of representatives elected either by the members or by delegates elected directly by the members, together with such other members of such body as may be prescribed by the society's constitution and laws;
(2) The elected representatives are constituted by a majority in number of the members who have not less than two-thirds of the votes nor less than the votes required to amend its constitution and laws;
(3) The meetings of the supreme legislative or governing body and the election of officers, representatives or delegates are held as often as once in four calendar years; .
(4) Each insured member shall be eligible for election to act or serve as a delegate to such meeting;
(5) The society has a board of directors charged with the responsibility of managing its affairs in the interim

56-1904

FRATERNAL BENEFIT SociETIES

312

between meetings of its supreme legislative or governing body, subject to control by such body and having powers and duties delegated to it in the constitution or laws of the society;
(6) Such board of directors is elected by the supreme legislative or governing body, except in case of filling a vacancy in the interim between meetings of such body;
(7) The officers are elected either by the supreme legislature or governing body or by the board of directors; and
(8) The members, officers, representatives or delegates shall not vote by proxy. (Acts 1960, pp. 289, 591.)-
Editorial Note.-Reproduced to correct typographical error in last line of paragraph (1) in bound volume.
56-1904. Organization.-The organization of a society shall be governed as follows:
(1) Seven or more citizens of the United States, a majority of whom are citizens of this State, who desire to form a fraternal benefit society, may make, sign and acknowledge before some officer, competent to take acknowledgement of deeds, a petition for a charter, in which shall be stated:
(a) The proposed corporate name of the society, which shall not so closely resemble the name of any society or insurance company as to be misleading or confusing;
(b) The purposes for which it is being formed and the mode in which its corporate powers are to be exercised. Such purposes shall not include more liberal powers than are granted by this Chapter; Provided, that any lawful social, intellectual, educational, charitable, benevolent, moral, fraternal or religious advantages may be set forth among the purposes of the society; and
(c) The names and residences of the incorporators and the names, residences-and official titles of all the officers,

313

FRATERNAL BENEFIT SociETIES

56-1904

trustees, directors, or other persons who are to have and exercise the general control of the management of the affairs and funds of the society for the first year or until the ensuing election at which all such officers shall be elected by the supreme legislative or governing body, which election shall be held not later than one year from the date of the issuance of the permanent certificate.
(2) Such petition for a charter, duly certified copies of the constitution, laws and rules, copies of all proposed forms of certificates, applications therefor, and circulars to be issued by the society and a bond conditioned upon the return to applicants of the advanced payments if the organization is not completed within one year, such bond to be in an amount to be determined by the Commissioner not to exceed the sum of twenty-five thousand ($25,000) dollars with sureties approved by the Commissioner, shall be filed with the Secretary of State, who may require such further information as he deems necessary. All documents filed are to be in the English language. The Secretary of State shall transmit immediately one copy of said petition to the Commissioner and shall return one copy to the petitioner. If the purposes of the society conform to the requirements of this Chapter and all provisions of the law have been complied with, the Commissioner shall so certify, in writing, to the Secretary of State and shall furnish the incorporators a preliminary certificate authorizing the society to solicit members as hereinafter provided, but only after the granting of the certificate of the incorporation by the Se'cretary of State. A fraternal benefit society shall be incorporated by the Secretary of State upon compliance with the applicable provisions of law. The publication requirements of section 56-1505 (2) and (3) shall also be applicable to charters granted under this Chapter.
(3) No preliminary certificate granted under the provisions of this section shall be valid after one year from its date or after such further period, not exceeding one year, as may be authorized by the Commissioner upon cause shown, unless the five hundred (500) applicants hereinafter required have been secured and the organiza-

56-1904

FRATERNAL B ENEFIT SOCIETIES

314

tion has been completed as herein provided. The charter and all other proceedings thereunder shall become null and void in one year from the date of the preliminary certificate, or at the expiration of the extended period, unless the society shall have completed its organization and received a certificate of authority to do business as hereinafter provided.
(4) Upon receipt of a preliminary certificate from the Commissioner, the society may solicit members for the purpose of completing its organization, shall collect from each applicant the amount of not less than one regular monthly premium in accordance with its table of rates as provided by its constitution and laws, and shall issue to each such applicant a receipt for the amount so collected. No society shall incur any liability other than for the return of such advance premium, no:r issue any certificate, nor pay, allow, or offer or promise to pay or allow, any death or disability benefit to any person until:
(a) Actual bona fide applications for death benefits have been secured aggregating at least five hundred thousand ($500,000) dollars on not less than five hundred (500) lives;
(b) All such applicants for death benefits shall have furnished evidence of insurability satisfactory to the society;
(c) Certificates of examinations or acceptable declarations of insurability have been duly filed and approved by the chief medical examiner of the society;
(d) Ten (10) subordinate lodges or branches have been established into which the five hundred (500) applicants have been admitted;
(e) There has been submitted to the Commissioner, under oath of the president or secretary, or corresponding officer of the society, a list of such applicants, giving their names, addresses, date each was admitted, name and

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56-1905

number of the subordinate branch of which each applicant is a member, amount of benefits to be granted and premiums therefor; and
(f) It shall have been shown to the Commissioner, by sworn statement of the treasurer, or corresponding officer of such society, that at least five hundred (500) applicants have each paid in cash at least one regular monthly premium as herein provided, which premiums in the aggregate shall amount to at least twenty-five hundred ($2,500) dollars, all of which shall be credited to the fund or funds from which benefits are to be paid and no part of which may be used for expenses. Said advance premiums shall be held in trust during the period .of organization and if the society has not qualified for a certificate of authority within one year, as herein provided, such premiums shall be returned to said applicants.
(5) The Commissioner may make such examination and require such further information as he deems advisable. Upon presentation of satisfactory evidence that the society has complied with all the provisions of law, he shall issue to the society a certificate to that effect and that the society is authorized to transact business pursuant to the provisions of this Chapter. The certificate shall be prima facie evidence of the existence of the society at the date of such certificate. The Commissioner shall cause a record of such certificate to be made. A certified copy of such record may be given in evidence with like effect as the original certificate.
(6) Every society shall have the power to adopt a constitution and laws for the government of the society, the admission of its members, the management of its affairs and the fixing and readjusting of the rates of its members from time to time. It shall have the power to change, alter, add to or amend such constitution and laws and shall have such other powers as are necessary and incidental to carrying into effect the objects and purposes of the society.
56-1905. Corporate powers retained.-Any incorpo-

56-1906

FRATERNAL BENEFIT SociETIEs

316

rated society authorized to transact business in this State . at the time this Chapter becomes effective may thereafter exercise all the rights, powers and privileges prescribed in this Chapter and in its charter as far as consistent with this Chapter. A domestic society shall not be required to reincorporate.
56-1906. Existing voluntary associations; may incorporate.-After one year from the effective date of this Chapter, no unincorporated or voluntary association shall be permitted to transact business in this State.
Any domestic voluntary association now authorized to transact business in this State may incorporate and shall receive from the Secretary of State a permanent certificate of incorporation as a fraternal benefit society when:
(1) It shall have completed its conversion to an incorporated society not later than one year from the effective date of this Chapter;
(2) It has filed its petition for a charter, and has satisfied the other requirements described in section 56-1904.
Every voluntary association so incorporated shall incur the obligations and enjoy the benefits thereof the same as though originally incorporated, and such corporation shall be deemed a continuation of the original voluntary association. The officers thereof shall serve through their respective terms as provided in its original charter, but their successors shall be elected and serve as provided in its charter. Incorporation of a voluntary association shall not affect existing suits, claims or contracts.
56-1907. Location of office; place of meeting.-The principal office of any domestic society shall be located in this State. The meetings of its supreme legislative or governing body may be held in any state, district, province or territory wherein such society has at least five subordinate branches and all business transacted at such meetings shall be as valid in all respects as if such meetings were held in this State.

317 '

FRATE R N AL BENEFIT S OC IE T IES

56-1907

56-1908. Consolidations and mergers.-(1) A domestic society may consolidate or merge with any other society by complying with the provisions of this section. The filing of application, fee and publication requirements of section 56-1505 (1), (2) and (3) shall be applicable to merger under this Chapter.
(2) The application shall state the names and respective locations of the merged or consolidated societies, with the dates of their original charters and all amendments thereto, and the name and location of the consolidated or merged society. The application shall be signed with the corporate names and under the corporate seals of the societies. There shall be filed with the application:
(a) A certified copy of the written contract containing in full the terms and conditions of the consolidation or merger;
(b) A sworn statement by the president and secretary or corresponding officers of each society showing the financial condition thereof on a date fixed by the Commissioner but not earlier than December 31st, next preceding the date of the contract;
(c) A certificate of such officers, duly verified by their respective oaths, that the consolidation or merger has been approved by a two-thirds (%) vote of the supreme legislative or governing body of each society; and
(d) Evidence that at least sixty (60) days prior to the action of the supreme legislative or governing body of each society, the text of the contract has been furnished to all members of each society either by mail or by publication in full in the official organ of each society.
(e) In the event any society which is a party to the contract is incorporated under the laws of any other state or territory, a certificate of approval as provided by the laws of such state or territory; if the laws of such state or territory contain no such provision, then the consolidation

56-1908

FRATERNAL BENEFIT SociETIES

318

or merger must be approved by the supervising insurance official of such state or territory, and a certificate of such approval.
(3) If the Commissioner finds that the contract is in conformity with the provisions of this section, that the financial statements are correct and that the consolidation or merger is just and equitable to the members of each society, he shall approve the contract and issue his certificate to such effect, transmitting a copy of such certificate of approval to the Secretary of State. If the Commissioner does not approve the contract, he shall notify the society and shall transmit a copy of his certificate of disapproval to the Secretary of State.
(4) Upon receipt of the certificate of the ordinary as to the publication of the application and the certificate of approval of the Commissioner, the Secr~tary of State shall issue, under the great seal of the State, a certificate of merger, which certificate shall be the charter of the consolidated or merged society. The Secretary of State shall record the application, the contract of merger and the other documents required to be filed, the certificate of the ordinary, the certificate of the Commissioner and the certificate of merger in a book to be kept by him for that purpose.
(5) Upon the consolidation or merger becoming effective as herein provided, all the rights, franchises and interests of the consolidated or merged societies in and to every species of property, real, personal, or mixed, and things in action thereunto belonging shall be vested in the society resulting from or 1emaining after the consolidation or merger without any other instrument, except that conveyances of real property may be evidenced by proper deeds, and the title to any real estate or interest therein, vested under the laws of this State in any of the societies consolidated or merged, shall not revert or be in any way impaired by reason of the consolidation or merger, but shall vest absolutely in the society resulting from or remaining after such consolidation or merger.

. 319

FRATERNAL BENEFIT SociETIES

56-1910

(6) The affidavit of any officer of the society or of anyone authorized by it to mail any notice or document, stating that such notice or document has been duly addressed and mailed, shall be prima facie evidence that such notice or document has been furnished the addressees.
56-1909. Conversion of fraternal benefit society into mutual life insurance company.-Any domestic fraternal benefit society may be converted and licensed as a mutual life insurance company by compliance with all the applicable requirements of Chapter 56-15 if such plan of conversion has been approved by the Commissioner. Such plan shall be prepared in writing setting forth in full the terms and conditions thereof. The board of directors shall submit such plan to the supreme legislative or governing body of such society at any regular or special meeting thereof, by giving a full, true and complete copy of such plan with the notice of such meeting. Such notice shall be given as provided in the laws of the society for the convocation of a regular or special meeting of such body, as the case may be. The affirmative vote of two-thirds (-2;3) of all members of such body shall be necessary for the approval of such agreement. N.o such conversion shall take effect unless and until approved by the Commissioner who may give such approval if he finds that the proposed change is in conformity with the requirements of law and not prejudicial to the certificate holders of the society.
56-1910. Qualifications for membership.-A society may admit to benefit membership any person not less than fifteen (15) years of age, nearest birthday, who has furnished evidence of insurability acceptable to the society. Any such member who shall apply for additional benefits more than six months after becoming a benefit member shall pass an additional medical examination, or make an additional declaration of insurability, as required by the society.
Any person admitted prior to attaining the full age of twenty-one (21) years shall be bound by the terms of the

56-1911

FRATERNAL BENEFIT SociETIES

320

application and certificate and by all the laws and rules of the society and shall be entitled to all the rights and privileges of membership therein to the same extent as though the age of majority had been attained at the time of application. A society may also admit general or social members who shall have no voice or vote in the management of its insurance affairs.
56-1911. Charter, constitution and laws; amendments.
-A domestic society may amend its charter, constitution or laws in accordance with the provisions thereof by action of its supreme legislative or governing body at any regular or special meeting thereof or, if its charter, constitution or laws so provide, by referendum. Such referendum may be held in accordance with the provisions of its charter, constitution or laws by the vote of the voting members of the society, by the vote of delegates or representatives of voting members or by the vote of local lodges or branches. No amendment submitted for adoption by referendum shall be adopted unless, within six months from the date of submission thereof, a majority of all of the voting members of the society shall have signified their consent to such amendment by one of the methods herein specified. Charter amendments shall be filed in triplicate with the Secretary of State, published and approved only under the procedure established in section 56-1509.
No amendment to the charter, constitution or laws of any domestic society shall take effect unless approved by the Commissioner and granted by the Secretary of State as provided in section 56-1509 who shall approve and grant respectively, such amendment if they find that it has been duly adopted and is not inconsistent with any requirement of the ,laws of this State or with the character, objects and purposes of the society. The approval or disapproval of the Commissioner shall be in writing forwarded to the Secretary of State and also mailed to the secretary or corresponding officer of the society at its principal office. In case he disapproves such amendment, the reason therefor shall be stated in such written notice.

321

FRATERNAL BENEFIT SociETIEs

56-1912

Amendments to charters shall not be effective until granted by the Secretary of State.
Within ninety (90) days from the approval thereof by the Commissioner, all such amendments, or a synopsis thereof, shall be furnished to all members of the society either by mail or by publication in full in the official organ of the society. The affidavit of any officer of the society or of anyone authorized by it to mail any amendments or synopsis thereof, stating facts which show that same have been duly addressed and mailed, shall be prima facie evidence that such amendments or synopsis thereof, have been furnished the addressee.
Every foreign or alien society authorized to do business in this State shall file with the Commissioner a duly certified copy of all amendments of, or additions to, its charter, constitution or laws within ninety (90) days after the enactment of same.
Printed copies of the constitution or laws as amended, certified by the secretary or corresponding officer of the society shall be prima facie evidence of the legal adoption thereof.
56-1912. Institutions.-It shall be lawful for a society to create, maintain and operate charitable, benevolent or educational institutions for the benefit of its members and their families and dependents and for the benefit of children insured by the society. For such purpose it may own, hold or lease personal property or real property located within or without this State, with necessary buildings thereon. Such property shall be reported in every annual statement but shall not be allowed as an admitted asset of such society.
Maintenance, treatment and proper attendance in any such institution may be furnished free or a reasonable charge may be made therefor, but no such institution shall be operated for profit. The society shall maintain a separate accounting of any income and disbursements

56-1913

FRATE RNAL BENEFIT SociETIES

322

under this section and report them in its annual statement. No society shall own or operate funeral homes or undertaking establishments.
56-1913. Payment of benefits other than insurance benefits.-A society may pay benefits, other than insurance benefits, to its members from any special account or fund maintained for such purpose; Provided, that if such benefits are of such a nature that they could constitute benefits within the classes of insurance set forth in Section 56-1915, a society making such payments may not:
(1) Make any separate charge therefor;
(2) Issue any certificate, policy or other document promising such payments;
(3) Provide in its constitution, laws or any other document that such payments may be received by the member as a matter of right; or
(4) Advertise such payments as insurance or as payments to which the member has any right.
The society shall maintain a separate accounting of all disbursements made under this section and report them in its annual statement.
56-1914. No personal liability.- The officers and members of the supreme, grand or any subordinate body of a society shall not be personally liable for payment of any benefits provided by a society.
56-1915. Benefits.-A society authorized to do business in this State may provide for the payment of:
(1) Death benefits in any form;
(2) Endowment benefits;
(3) Annuity benefits ;

FRATERNAL BENEFIT SociETIES

56-1917

(4) Temporary or permanent disability benefits as a result of disease or accident;
(5) Hospital, medical or nursing benefits due to sickness or bodily infirmity or accident; and
(6) Monument or tombstone benefits to the memory of deceased members not exceeding any case the sum of three hundred ($300.00) dollars.
Any such benefits may be provided for a member, or upon application of a member, for the member's family, including the member, the member's spouse and minor children, in one or more certificates.
56-1916. Benefits on lives of children.-A society may provide for benefits on the lives of children under the minimum age for adult membership but not greater than twenty-one (21) years of age at time of application therefor, upon the application of some adult person, as its laws or rules may provide, which benefits shall be in accordance with the provisions of section 56-1915. A society may, at its option, organize and operate branches for such children. Membership and initiation in local lodges shall not be required of such children, nor shall they have a voice in the management of the society.
Children insured under certificate issued pursuant to this section may be transferred to and become members of the adult branch of the society upon attaining the minimum age for adult membership under the laws of the society.
A society shall have power to provide for the designation and changing of designation of beneficiaries in the certificates providing for such benefits and to provide in all other respects for the regulation, government and control of such certificates and all rights, obligations and liabilities incident thereto and connected therewith.
56-1917. Nonforfeiture benefits, cash surrender values, certificate loans and other options.-A society may

56-1917

FRATERNAL BENEFIT SociETIES

324

grant paid-up nonforfeiture benefits, cash surrender values, certificate loans and such other options as its laws may permit. As to certificates issued on and after the effective date of this Chapter, a society shall grant at least one paid-up nonforfeiture benefit.
In the case of certificates other than those for which reserves are computed on the Commissioners' 1941 Standard Ordinary Mortality Table or the 1941 Standard Industrial Table, the value of every paid-up nonforfeiture benefit and the amount of any cash surrender value, loan or other option granted shall not be less than the excess, if any, of (1) over (2) as follows:
(1) The reserve under the certificate determined on the basis specified in the certificate; and
(2) The sum of any indebtedness to the society on the certificate, including interest due and accrued, and a surrender charge equal to two and one-half (2%%) percent of the face amount of the certificate, which, in the case of insurance on the lives of children, shall be the ultimate face amount of the certificate, if death benefits provided therein are graded.
However, in the cases of certificates issued on a substandard basis or in the case of certificates, the reserves for which are computed upon the American Men Ultimate Table of Mortality, the term of any extended insurance benefit granted including accompanying pure endowment, if any, may be computed upon the rates of mortality not greater than one hundred thirty (130%) percent of those shown by the mortality table specified in the certificate for the computation of the reserve.
In the case of certificates for which reserves are computed on the Commissioners' 1941 Standard Ordinary Mortality Table or the 1941 Standard Industrial Table, every paid-up nonforfeiture benefit and the amount of any cash surrender value, loan or other option granted shall not be less than the corresponding amount ascer-

325

FRATERNAL BENEFIT SociETIES

56 1920 '

tained in accordance with the provisions of the laws of this State applicable to life insurance companies issuing policies containing like insurance benefits based upon such tables.
56-1918. Beneficiaries.-The member shall have the right at all times to change the beneficiary or beneficiaries in accordance with the constitution, laws or rules of the society. Every society by its constitution, laws or rules may limit the scope of beneficiaries and shall provide that no beneficiary shall have or obtain any vested interest in the proceeds of any certificate until the certificate has become due and payable in conformity with the provisions of the insurance contract.
A society may make provision for the payment of funeral benefits to the extent of such portion of any payment under a certificate as might reasonably appear to be due to any person equitably entitled thereto by reason of having incurred expense occasioned by the burial of the member, provided the portion so paid shall not exceed the sum of five hundred ($500) dollars.
If, at the death of any member, there is no lawful beneficiary to whom the insurance benefits shall be payable, the amount of such benefits, except to the extent that funeral benefits may be paid as hereinbefore provided, shall be payable to the personal representative of the deceased member.
56-1919. Benefits not attachable.-No money or other benefit, charity, relief or aid to be paid, provided or rendered by any society, shall be liable to attachment, garnishment or other process, or to be seized, taken, appropriated or applied by any legal or equitable process or operation of law to pay any debt or liability of a member or beneficiary, or any other person who may have a right thereunder, either before or after payment by the society.
56-1920. The contract.-Every society authorized to do business in this State shall issue to each benefit mem-

56-1920

FRATERNAL BENEFIT SociETIES

326

ber a certificate specifying the amount of benefits provided thereby. The certificate, together with any riders or endorsements attached thereto, the charter, the constitution and laws of the society, the application for membership, and declaration of insurability, if any, signed by the applicant, and all amendments to each thereof, shall constitute the agreement, as of the date of issuance, between the society and the member, and the certificate shall so state. A copy of the application for membership and of the declaration of insurability, if any, shall be endorsed upon or attached to the certificate.
All statements purporting to be made by the member shall be representations and not warranties. Any waiver of this provision shall be void.
Any changes, additions or amendments to the charter, or constitution or laws duly made or enacted subsequent to the issuance of the certificate, shall bind the member and the beneficiaries, and shall govern and control the agreement in all respects the same as though such changes, additions or amendments had been made prior to and were in force at the time of the application for membership, except that no change, addition, or amendment shall destroy or diminish benefits which the society contracted to give the member as of the date of issuance.
Copies of any of the documents mentioned in this section, certified by the secretary or corresponding officer of the society, shall be received in evidence of the terms and conditions thereof.
A society shall provide in its constitution or laws and in its certificates that if its reserves as to all or any class of certificates become impaired its board of directors or corresponding body may require that there shall be paid by the member to the society the amount of the member's equitable proportion of such deficiency as ascertained oy its board, and that if the payment be not made it shall stand as an indebtedness against the certificate and draw
interest not to exceed five (5 %- ) percent per annum com-
pounded annually.

327

FRATERNAL BENEFIT SociETIES

56-1921

56-1921. Provisions; standard and prohibited.-After one year from the effective date of this Chapter, no life benefit certificate shall be delivered or issued for delivery in this State unless a copy of the form shall have been filed with the Commissioner and approved by him as conforming to the requirements of this section and not inconsistent with any other provisions of law applicable thereto. A certificate shall be deemed approved unless disapproved by the Commissioner within sixty (60) days of the date of such filing.
(1) The certificate shall contain in substance the following standard provisions or, in lieu thereof, provisions which are more favorable to the member:
(a) Title on the face and filing page of the certificate clearly and correctly describing its form;
(b) A provision stating the amount of rates, premiums or other required contributions, by whatever name known, which are payable by the insured under the certificate;
(c) A provision that the member is entitled to a grace period of not less than a full month (or thirty (30) days. at the option of the society) in which the payment of any premium after the first, may be made. During such grace period the certificate shall continue in full force, but in case the certificate becomes a claim during the grace period before the overdue payment is made, the amount of such overdue payment or payments may be deducted in any settlement under the ceitificate;
(d) A provision that the member shall be entitled to have the certificate reinstated at any time within three years from the due date of the premium in default, unless the certificate has been completely terminated through the application of a nonforfeiture benefit, cash surrender value or certificate loan, upon the production of evidence of insurability satisfactory to the society and the payment of all overdue premiums and any other

56-1921

FRATERNAL BE NEFIT Soc i ETIE S

328

indebtedness to the society upon the certificate, together with interest on such premiums and such indebtedness, if any, at a rate not exceeding six ( 6 o/c ) percent per annum compounded annually;
(e) Except in the case of pure endowment, annuity or reversionary annuity contracts, reducing term insurance contracts, or contracts of term insurance of uniform amount of fifteen (15) years or less expiring before age sixty-six (66), a provision that, in the event of default in payment of any premium after three full years' premiums have been paid or after premiums for a lesser period have been paid if the contract so provides, the society will grant, upon proper request not later than sixty (60) days after the due date of the premium in default, a paid-up nonforfeiture benefit on the plan stipulated in the certificate, effective as of such due date, of such value as specified in this Chapter. The certificate may provide, if the society's laws so specify or if the member shall so elect prior to the expiration of the grace period of any overdue premium, that default shall not occur so long as premiums can be paid under the provisions of an arrangement for automatic premium loan as may be set forth in the certificate;
(f) A provision that one paid-up nonforfeiture benefit as specified in the certificate shall become effective automatically unless the member elects another available paid-up nonforfeiture benefit, not later than (60) days after the due date of the premium in default;
(g) A statement of the mortality table and rate of interest used in determining all paid-up nonforfeiture benefits and cash surrender options available under the certificate, and a brief general statement of the method used in calculating such benefits;
(h) A table showing in figures the value of every paidup nonforfeiture benefit and cash surrender option available under the certificate for each certificate anniversary either during the first twenty (20) certificate years or during the term of the certificate whichever is shorter;

329

FRATERNAL BENEFIT SociETIEs

56-1921

(i) A provision that the certificate shall be incontestable after it has been in force during the lifetime of the member for a period of two years from its date of issue except for nonpayment of premiums, violations of the provisions of the certificate relating to 'military, aviation, or naval service and violation of the provisions relating to suspension or expulsion as substantially set forth in the certificate. At the option of the society, supplemental provisions relating to benefits in the event of temporary or permanent disability or hospitalization and provisions which grant additional insurance specifically against death by accident or accidental means, may also be excepted. The certificate shall be incontestable on the ground of suicide after it has been in force during the lifetime of the member for a period of two years from date of issue. The certificate may provide, as to statements made to procure reinstatement, that the society shall have the right to contest a reinstated certificate within a period of two years from date of reinstatement with the same exceptions as herein provided;
(j) A provision that in case the age of the member or of the beneficiary is considered in determining the premium and it is found at any time before final settlement under the certificate that the age has been misstated, and the discrepancy and premium involved have not been adjusted, the amount payable shall be such as the premium would have purchased at the correct age; but if the correct age was not an insurable age under the society's charter or laws, only the premiums paid to the society, less any payments previously made to the member, shall be returned or, at the option of the society, the amount payable under the certificate shall be such as the premium would have purchased at the correct age according to the society's promulgated rates and any extension thereof based on actuarial principles;
(k) A provision or provisions which recite fully, or which set forth the substance of, all sections of the charter, constitution, laws, rules or regulations of the society, in force at the time of issuance of the certificate, the

56-1921

FRATERNAL BENEFIT SociETIES

330

violation of which will result in the termination of, or in the reduction of, the benefit or benefits payable under the certificate ;
(I) If the constitution or laws of the society provide for expulsion or suspension of a member, any member so expelled or suspended, except for nonpayment of a premium or within the contestable period for material misrepresentations in such member's application for membership shall have the privilege of maintaining his insurance in force by continuing payment of the required premiums; and
(m) In the case of a certificate issued by a foreign or alien society, a provision that the rights or obligations of the member or of any person rightfully claiming under the certificate shall be governed by the laws of this State.
Any of the foregoing prov1swns or portions thereof not applicable by reason of the plan of insurance or because the certificate is an annuity certificate may, to the extent inapplicable, be omitted from the certificate.
(2) After one year from the effective date of this Chapter, no life benefit certificate shall be delivered or issued for delivery in this State containing in substance any of the following provisions:
(a) Any provision limiting the time within which any action at law or in equity may be commenced to less than two years after the cause of action shall accrue;
(b) Any provision by which the certificate shall purport to be issued or to take effect more than six months before the original application for the certificate was made, except in case of transfer from one form of certificate to another in conection with which the member is to receive credit for any reserve accumulation under the form of certificate from which the transfer is made; or

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(c) Any provision for forfeiture of the certificate for failure to repay any loan thereon or to pay interest on such loan while the total indebtedness, including interest, is less than the loan value of the certificate.
(3) The word "premiums" as used in this Chapter means premiums, rates, or other required contributhms by whatever name known.
56-1922. Accident and sickness insurance and total and permanent disability insurance certificate; filing and approval.-No domestic, foreign or alien society authorized to do business in this State shall issue or deliver in this State any certificate or other evidence of any contract of accident insurance or sickness insurance or of any total and permanent disability insurance contract unless and until the form thereof, together with the form of application and all riders or endorsements for use in connection therewith, shall have been filed with the Commissioner and approved by him as conforming to reasonable rules and regulations from time to time made by him and as not inconsistent with any other provisions of law applicable thereto. The Commissioner shall, within a reasonable time after the filing of any such form, notify the society filing the same either of his approval or of his disapproval of such form. The Commissioner may approve any such form which in his opinion contains provisions on any one or more of the several requirements made by him which are more favorable to the members than the one or ones so required. Pursuant to the foregoing provision the Commissioner shall have power, from time to time, to make, alter and supercede reasonable regulations prescribing the required optional and prohibited provisions in such contracts, and such regulations shall conform, as far as practicable, to the provisions of Chapter 56-30 establishing accident and sickness policy provisions. Where the Commissioner deems inapplicable, either in part or in their entirety, the provisions of the foregoing sections, he may prescribe the portions of summary thereof of the contract to be printed on the certificate issued to the member. Any

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FRATERNAL BENEFIT SociETIE S

332

filing made hereunder shall be deemed approved undess disapproved within sixty (60) days from the date of such filing.
56-1923. Waiver.-The constitution and laws of the society may provide that no subordinate body, nor any of its subordinate officers or members shall have the power or authority to waive any of the provisions of the laws and constitution of the society. Such provision shall be binding on the society and every member and beneficiary of a member.
56-1924. Reinsurance.-A domestic society may, by a reinsurance agreement, cede any individual risk or risks in whole or in part to an insurer (other than another fraternal benefit society) having the power to make . such reinsurance and authorized to do business in this State, or if not so authorized, one which is approved by the Commissioner; but no such society may reinsure substantially all of its insurance in force without the written permission of the Commissioner. It may take credit for the reserves on such ceded risks to the extent reinsured, but no credit shall be allowed as an admitted asset or as a deduction from liability, to a ceding society for reinsurance made, ceded, renewed, or otherwise becoming effective after the effective date of this Chapter, unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding society under the contract or contracts reinsured without diminution because of the insolvency of the ceding society.
56-1925. Annual license.-Societies which are now authorized to transact business in this State may continue such business until June 30th next succeeding the effective date of this Chapter. The authority of such societies and all societies hereafter licensed, may thereafter be renewed annually, but in all cases to terminate on June 30th in the succeeding year. However, a license so issued shall continue in full force and effect until the new license to be issued or specifically refused. For each such license or renewal the society shall pay the Commissioner

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the sum of fifty ($50.00) dollars if it has three thousand (3000) or less policies outstanding in this State, or the sum of three hundred ($300.00) dollars if it has more than three thousand (3000) policies outstanding in this State. A duiy certified copy or duplicate of such license shall be prima facie evidence that the licensee is a fraternal benefit society within the meaning of this Chapter.
56-1926. Foreign or alien society; admission.-No foreign or alien society shall transact business in this State without a license issued by the Commissioner. Any such society may be licensed to transact business in this State upon filing with the Commissioner:
(1) A duly certified copy of its charter;
(2) A copy of its constitution and laws, certified by its secretary or corresponding officer;
(3) A power of attorney to the .Commissioner as prescribed in Section 56-1930;
(4) A statement of its business under oath of its president and secretary or corresponding officers in a form prescribed by the Commissioner, duly verified by an ex amination made by the supervising insurance official of its home state or other state, territory, province or country, satisfactory to the Commissioner of this State;

(5) A certificate from the proper official of its home state, territory, province or country that the society is legally incorporated and licensed to transact business therein;
(6) Copies of its certificate forms; and
(7) Such other information as he may deem necessary; and upon a showing that its assets are invested in accordance with the provisions of this Chapter.
Any foreign or alien society desiring admission to this

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FRATERNAL BENEFIT SociETIES

334

State shall have the qualification~ required of domestic societies organized under this Chapter.
56-1927. Injunction; liquidation; receivership of domestic society.-When the Commissioner upon investigation finds that a domestic society:
(1) Has exceeded its powers;
(2) Has failed to comply with any provision of this Chapter;
(3) Is not fulfilling its contracts in good faith;
(4) Has a membership of less than four hundred (400) after an existence of one year or more ; or
(5) Is conducting business fraudulently or in a manner hazardous to its members, creditors, the public or the business;
he shall notify the society of his findings, state in writing the reasons for his dissatisfaction, and require the society to show cause on a date named why it should not be enjoined from carrying on any business until the violation complained of shall have been corrected, or why an action in quo warranto should not be commenced against the society.
If on such date the society does not present good and sufficient reasons wliy it should not be so enjoined or why such action should not be commenced, the Commissioner may present the facts relating thereto to the Attorney General who shall, if he deems the circumstances warrant, commence an action to enjoin the society from transacting business or in quo warranto.
The court shall thereupon notify the officers of the society of a hearing. If after a full hearing it appears that the society should be so enjoined or liquidated or a receiver appointed, the court shall enter the necessary order.

335

FRATERNAL BENEFIT SociETIES

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No society so enjoined shall have the authority to do business until:
(a) The Commissioner finds that the violation complained of has been corrected;
(b) The costs of such action shall have been paid by the society if the court finds that the society was in default as charged;
(c) The court has dissolved its injunction; and
(d) The Commissioner has reinstated the certificate of authority.
If the court orders the society liquidated, it shall be enjoined from carrying on any further business, whereupon the receiver of the society shall proceed at once to take possession of the books, papers, money and other assets of the society and, under the direction of the court, proceed forthwith to close the affairs of the society and to distribute its funds to those entitled thereto.
No action under this section shall be . recognized in any court of this State unless brought by the Attorney General upon request of the Commissioner. Whenever a receiver is to be appointed for a domestic society, the court shall appoint, the Commissioner as such receiver.
The provisions of this section relating to hearing by the Commissioner, action by the Attorney General at the request of the Commissioner, hearing by the court, injunction and receivership shall be applicable to a society which shall voluntarily determine to discontinue business.
56-1928. Suspension, revocation or refusal of license
of foreign .or alien society.-When the Commissioner upon investigation finds that a foreign or alien society transacting or applying to transact business in this State:

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FRAT ERNAL BENEFIT SociETIES

336

( 1) Has exceeded its powers;

(2) Has failed to comply with any of the provisions of this Chapter;
(3) Is not fulfilling its contracts in good faith; or

(4) Is conducting its business fraudulently or in a

manner hazardous to its members or creditors or the pub-

lic; he shall notify the society of his findings, state in

writing the reasons for his dissatisfaction and require the

society to show cause on a date named why its license

should not be suspended, revoked or refused. If on such

date the society does not present good and sufficient rea-

son why its authority to do business in this State should

not be suspended, revoked or refused, he may suspend or refuse th~ license of the society to do business in this

State until satisfactory evidence is furnished to him that

such suspension or refusal should be withdrawn or he

may revoke the authority of the society to do business in

this State.

'

Nothing contained in this section shall be taken or construed as preventing any such society from continuing in good faith all contracts made in this State during the time such society was legally authorized to transact business herein.

56-1929. Licensing of agents.-Agents of societies shall be licensed in accordance with the provisions of this section.

(1) Insurance agent defined-The term "insurance agent" as used in this section means any authorized or acknowledged agent of a society who acts as such in the solicitation, negotiation or procurement or making of a life insurance, accident and sickness insurance or annuity contracts, except that the term "insurance agent" shall not include:

(a) Any regular salaried officer or employee of a

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licensed society who devotes substantially all of his services to activities other than the solicitation of fraternal insurance contracts from the public, and who receives for the solicitation of such contracts no commission or other compensation directly dependent upon the amount of business obtained; or
(b) Any agent or representative of a society who devotes, or intends to devote, less than fifty (50 % ) percent of his time to the solicitation and procurement of insurance contracts for such society. Any person who in the preceding calendar year has solicited and procured life insurance contracts on behalf of any society in an amount of insurance in excess of fifty thousand ($50,000) dollars, or, in the case of any other kind or kinds of insurance, which the society might write, on the persons of more than twenty-five (25) individuals and who has received or will receive a commission or other compensation therefor, shall be presumed to be devoting, or intending to devote, fifty (50% ) percent of his time to the solicitation or procurement of insurance contracts for such society.
(2) License required-Any person, who in this State acts as insurance agent for a society without having authority so to do by virtue of a license issued and in force pursuant to the provisions of this section shall, except as provided in subsection (1), be guilty of a misdemeanor.
(3) Payment of comm1sswns forbidden-No society doing business in this State shall pay any commission or other compensation to any person for any services in obtaining in this State any new contract of life, accident or sickness insurance, or any new annuity contract, except to a licensed insurance agent of such society and except an agent exempted under subsection (1) (b) of this section.
(4) Prerequisites, issuance and renewal of insurance agents' licenses:

56-1929

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338

(a) The Commissioner may issue a license to any person who has paid an annual license fee of fifteen ($15.00) dollars and who has complied with the requirements of this section, authorizing such licensee to act as an insurance agent on behalf of any society named in such license which is authorized to do business in this State.
(b) Before any insurance agent's license shall be issued there shall be on file in the office of the Commissioner the following documents:
(i) A written application by the prospective licensee in such form or forms and supplements thereto, and containing such information, as the Commissioner may prescribe; and
(ii) A certificate by the society which is to be named in such license, stating that such society has satisfied itself that the named applicant is t_rustworthy and competent to act as such insurance agent and that the society will appoint such applicant to act as its agent if the license applied for is issued by the Commissioner. Such certificates shall be executed and acknowledged by an officer or managing agent of such society.
(c) No written or other examination shall be required of any individual seeking to be named as a licensee to represent a fraternal benefit society as its agent.
(d) The Commissioner may refuse to issue or renew any insurance agent's license if in his judgment the proposed licensee is not trustworthy and competent to act as such agent, or has given cause for revocation or suspension of such license, or has failed to comply with any prerequisite for the issuance or renewal, as the case may be, of such license.
(e) Every license issued pursuant to this section, and every renewal thereof, shall expire at midnight on the last day of February following the date of issue.

339

FRATERNAL BENEFIT SociETIES

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(f) If the application for a renewal license shall have been filed with the Commissioner on or before March 1st of the year in which the existing license is to expire, such applicant named in such existing license may continue to act as insurance agent under such existing license, unless same shall be revoked or suspended, until the issuance by the Commissioner of the renewal license or until the expiration of five days after he shall have refused to renew such license and shall have served written notice of such refusal on the applicant. If the applicant shall, within thirty (30) days after such notice is given, notify the Commissioner in writing of his request for a hearing on such refusal, the Commissioner shall, within a reasonable time after receipt of such notice, grant such hearing, and he may, in his discretion, reinstate such license.
(g) Any such renewal license of an insurance agent may be issued upon the application of the society named in the existing license. Such application shall be in the form or forms prescribed by the Commissioner and shall contain such information as he may require. Such application shall contain a certificate executed by the president, or by a vice president, a secretary or assistant secretary, or corresponding officer by whatever name known, or by an employee expressly designated and authorized to execute such certificate of a domestic or foreign society or by the United States manager of an alien society, stating that the addresses therein given of the agents of such society for whom renewal licenses are requested therein have been verified in each instance immediately preceding tlie preparation of the application. Notwithstanding the filing of such application, the Commissioner may, after reasonable notice to any such society, require that any or all agents of such society to be named as licensees in renewal licenses shall execute and file separate applications for the renewal of such licenses, as hereinbefore specified, and he may also require that each such application shall be accompanied by the certificate specified in subsection (4) (b) (ii) above.
(5) Notice of termination of appointment of insur-

56-1930

FRATERNAL B ENEFIT SociETIES

340

ance agent-Every society doing business in this Stat~ shall upon the termination of the appointment of any insurance agent licensed to represent it in this State, forthwith file with the Commissioner a statement, in such form as he may prescribe, of the facts relative to such termination and the cause thereof. Every statement made pursuant to this section shall be deemed a privileged communication.
(6) Revocation or suspension of insurance agent's license:
(a) The Commissioner may revoked, or may suspend for such period as he may determine, any insurance agent's license if, after notice and hearing as specified in this section, he determines that the licensee has:
(i) Violated any provision of, or any obligation imposed by, this section, or has violated any law in the course of his dealings as agent;
(ii) Made a material misstatement in the application for such license;
(iii) Been guilty of fraudulent or dishonest practices;
(iv) Demonstrated his incompetence or untrustworthiness to act as an insurance agent; or
(v) Been guilty of rebating as defined by the laws of this State applicable to life insurance companies.
(b) The revocation or suspension of any insurance agent's license shall terminate forthwith the license of such agent. No individual whose license has been revoked shall be entitled to obtain any insurance agent's license under the provisions of this section for a period of one year after such revocation or, if such revocation be judicially reviewed, for one year after the final determination thereof affirming the action of the Commissioner in revoking such license.
56-1930. Service of process.-Every society author-

341

FRATE RNAL B ENE FIT Soc i ETIES

56-1933

ized to do business in this State shall appoint in writing the Commissioner and each successor in office to be its true and lawful attorney upon whom all lawful process in any action or proceeding against it shall be served, and shall agree in such writing that any lawful process against it which is served on said attorney shall be of the same legal force and validity as if served upon the society, and that the authority shall continue in force so long as any liability remains outstanding in this State. Copies of such appointment, certified by said Commissioner, shall be deemed sufficient evidence thereof and shall be admitted in evidence with the same force and effect as the original thereof might be admitted.
Service shall only be made upon the Commissioner, or if absent, upon the person in charge of his office. It shall be made in duplicate and shall constitute sufficient service upon the society. When legal process against a society is served upon the Commissioner, he shall forthwith forward one of the duplicate copies by registered mail, prepaid, directed to the secretary or corresponding officer. No such service shall require a society to file its answer, pleading or defense in less than thirty (30) days from the date of mailing the copy of the service to a society. Legal process shall not b e served upon a society except in the manner herein provided. At the time of serving any process upon the Commissioner, the plaintiff or complainant in the action shall pay to the Commissioner a fee of two ($2.00) dollars.
56-1931. lnjunction.-No application or petition for injunction against any domestic, foreign or alien society, or branch thereof, shall be recognized in any court of this State unless made by the Attorney General upon request of the Commissioner.
56-1932. Review.-All decisions and findings of the Commissioner made under the provisions of this Chapter shall be subject to r eview as provided in Chapter 56-2.
56-1933. Funds.-All assets shall be held, invested and disbursed for the use and benefit of the society and

56-1934

FRATE RNAL BENEFIT SociETIES

342

no member or beneficiary shall have or acquire individual rights therein or become entitled to any apportionment or the surrender of any part thereof, except as provided in the contract.
A society may create, maintain, invest, disburse and apply any special fund or funds necessary to carry out any purpose permitted by the laws of such society.
Every society, the admitted assets of which are less than the sum of its accrued liabilities and reserves under all of its certificates when valued according to standards required for certificates issued after one year from the effective date of this Chapter, shall, in every provision of the laws of the society for payments by members of such society, in whatever form made, distinctly state the purpose of the same and the proportjon thereof which may be used for expenses, and no part of the money collected for mortuary or disability purposes or the net accretions thereto shall be used for expenses.
56-1934. lnvestments.-A society shall invest its funds only in such investments as are authorized by the laws of this State for the investment of assets of life insurance companies and subject to the limitations thereon. Any foreign or alien society permitted or seeking to do business in this State which invests its funds in accordance with the laws of the state, district, territory, country or province in which it is incorporated, shall be held to meet the requirements of this section for the investment of funds.

56-1935. Reports and valuations.-Reports shall be filed and synopses of annual statements shall be published in accordance with the provisions of this section.
(1) Every society transacting business in this State shall annually, on or before March 1st, unless for cause shown such time has been extended by the Commissioner, file with the Commissioner a true statement of its financial condition, transactions and affairs for the preceding

343

FRATERNAL BENEFIT SociETIEs

56-1935

calendar year. The statement shall be in general form and context as approved and required by the Commissioner.
(2) A synopsis of its annual statement providing an explanation of the facts concerning the condition of the society thereby disclosed shall be printed and mailed to each benefit member of the society not later than June 1st of each year, or, in lieu thereof, such synopsis may be published in the society's official publication.
(3) As a part of the annual statement herein required, each society shall, on or before March 1st, file with the Commissioner a valuation of its certificates in force on December 31st last preceding provided, the Commissioner may, in his discretion for cause shown, extend the time for filing such valuation for not more than two calendar months. Such report of valuation shall show, as reserve liabilities, the difference between the present mid-year value of the promised benefits provided in the certificates of such society in force and the present midyear value of the future net premiums as the same are in practice actually collected, not including therein any value for the right to make extra assessments and not including any amount by which the present mid-year value of future net premiums exceeds the present midyear value of promised benefits on individual certificates. At the option of any society, in lieu of the above, the valuation may show the net tabular value. Such net tabular value as to certificates issued prior to one year after the effective date of this Chapter shall be determined in accordance with the provisions of law applicable prior to the effective date of this Chapter and as to certificates issued on or after one year from the effective date of this Chapter shall not be less than the reserves determined according to the Commissioners' Rei'>erve Valuation method as hereinafter defined. If the premium charged is less than the tabular net premium according to the basis of valuation used, an additional r eserve equal to the present value of the deficiency in such premiums shall be set up and maintained as a lia-

56-1935

FRATER NAL BENEFIT SociETIES

344

bility. The reserve liabilities shall be properly adjust~d in the event that the mid-year or tabular values are not appropriate.
(4) Reserves according to the Commissioners' Reserve Valuation method, for the life insurance and endowment benefits of certificates providing for a uniform amount of insurance and requiring the payment of uniform premiums shall be the excess, if any, of the present value, at the date of valuation, of such future guaranteed benefits provided for by such certificates, over the then present value of any future modified net premiums therefor. The modified net premiums for any such certificate shall be such uniform percentage of the respective contract premiums for such benefits that the present value, at the date of issue of the certificate, of all such modified net premiums shall be equal to the sum of the then present value of such benefits provided for by the certificate and the excess of (a) over (b), as follows:
(a) A net level premium equal to the present value, at the date of issue, of such benefits provided for after the first certificate year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of such certificate on which a premium falls due; Provided, however, that such net level annual premium shall not exceed the net level annual premium on the nineteen (19) year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of such certificate; and
(b) A net one year term premium for such benefits provided for in the first certificate year.
Reserves according to the Commissioners' Reserve Valuation method for: (i) life insurance benefits for varying amounts of benefits or requiring the payment of varying premiums; (ii) annuity and pure endowment benefits; (iii) disability and accidental death benefits in all certificates and contracts ; and (iv) all other benefits exce pt life insur ance and endowment benefits, shall be

345

FRATERNAL BENEFIT SociETIES

56-1935

calculated by a method consistent with the principles of this subsection.
(5) The present value of deferred payments due under incurred claims or matured certificates shall be deemed a liability of the society and shall be computed upon mortality and interest standards prescribed in the following subsection.
(6) Such valuation and underlying data shall be certified by a competent actuary or, at the expense of the society, verified by the actuary of the Department of Insurance of the state of domicile of the society.
The minimum standards of valuation for certificates issued prior to one year from the effective date of this Chapter shall be those provided by the law applicable immediately prior to the effective date of this Chapter but not lower than the standards used in the calculating of rates for such certificates.
The minimum standards of valuation for certificates issued after one year from the effective date of this Chapter shall be three and one-half (3% % ) percent interest and the following tables:
(a) For certificates of life insurance-American Men Ultimate Table of Mortality, with Bowerman's or Davis' Extension thereof or with the consent of the Commissioner, the Commissioners' 1941 Standard Ordinary Mortality Table or the Commissioners' 1941 Standard Industrial Table of Mortality;
(b) For annuity certificates, including life annuities provided or available under optional modes of settlement in such certificates-the 1937 Standard Annuity Table;
(c) For disability benefits issued in connection with life benefit certificates-Hunter's Disability Table, which, for active lives, shall be combined with a mortality table permitted for calculating the reserves on life insurance certificates, except that the table known as Class III Disability Table (1926) modified to conform to

56-1935

FRATERNAL BENE FIT SociETIES

346

the contractual waiting period, shall be used in computing reserves for disability benefits under a contract which presumes that total disability shall be considered to be permanent after a specified period;
(d) For accidental death benefits issued in connection with life benefit certificates the Inter-Company Double Indemnity Mortality Table combined with a mortality table permitted for calculating the reserves for life insurance certificates; and
(e) For noncancellable accident and sickness benefits -the Class III Disability Table (1926) with conference modifications or, with the consent of the Commissioner, tables based upon the society's own experience.
The Commissioner may, in his discretion, accept other standards for valuation if he finds .that the reserves produced thereby will not be less in the aggregate than reserves computed in accordance with the minimum valuation standards herein prescribed. The Commissioner may, in his discretion, vary the -standards of mortality applicable to all certificates of insurance on substandard lives or other extra hazardous lives by any society authorized to do business in this State. Whenever the mortality experience under all certificates valued on the same mortality table is in excess of the expected mortality according to such table for a period of three consecutive years, the Commissioner may require additional reserves when deemed necessary in his judgment on account of such certificates.
Any society, with the consent of the Commissioner of the state of domicile of the society and under such conditions, if any, which he may impose, may establish and maintain reserves on its certificates in excess of the reserves required thereunder, but the contractual rights of any insured member shall not be affected thereby.
(7) A society neglecting to file the annual statement in the form and within the time provided by this section

347

FRATERNAL BENEFIT SOCIETIES

56-1937

shall forfeit one hundred ($100.00) dollars for each day during which such neglect continues, and, upon notice by the Commissioner to that effect, its authority to do business in this State shall cease while such default continues.
56-1936. Examination of domestic societies.- The Commissioner, or any person he may appoint, shall have the power of visitation and examination into the affairs of any domestic society and he shall make such examination at least once in every three years. He may employ assistants for the purpose of such examination, and he, or any person he may appoint, shall have free access to all books, papers and documents that relate to the business of the society. The minutes of the proceedings of the supreme legislative or governing body and of the board of directors or corresponding body of a society shall be in the English language. In making any such examination the Commissioner may summon and qualify as witnesses under oath and examine its officers, agents and employees or other persons in relation to the affairs, transactions and condition of the society. A summary of the report of the Commissioner and such recommendations or statements of the Commissioner as may accompany such report, shall be read at the first meeting of the board of directors or corresponding body of the society following the receipt thereof, and if directed so to do by the Commissioner, shall also be read at the first meeting of the supreme legislative or governing body of the society following the receipt thereof. A copy of the report, recommendations and statements of the Commissioner shall be furnished by the society to each member of such board of directors or other governing body. The expense of each examination and of each valuation, including compensation and actual expenses of examiners, shall be paid by the society examined or whose certificates are valued, upon statements furnished by the Commissioner.
56-1937. Examination of foreign and alien societies. -The Commissioner, or any person whom he may ap-

56-1938

FRATERNA L BENE FIT SociETIE s

348

point, may examine any foreign or alien society transacting or applying for admission to transact business in this State. He may employ assistants and he, or any person he may appoint, shall have free access to all boo,ks, papers and documents that relate to the business of the society. He may in his discretion accept, in lieu of such examination, the examination of the Insurance Department of the state, territory, district, province or country where such society is organized. The compensation and actual expenses of the examiners making any examination or general or special valuation shall be paid by the society examined or by the society whose certificate obligations have been valued, upon statements furnished by the Commissioner.
56-1938. No adverse publications.-Pending, during or after an examination or investigation of a society, either domestic, foreign or alien, the Commissioner shall make public no financial statement, report or finding, nor shall he permit to become public any financial statement, report or finding affecting the status, standing or rights of any society, until a copy thereof shall have been served upon the society at its principal office and the society shall have been afforded a reasonable opportunity to answer any such financial statement, report or finding and to make such showing in connection therewith as it may desire.
56-1939. Misrepresentation.-No person shall cause or permit to be made, issued or circulated in any form:
(1) Any misrepresentation or false or misleading statement concerning the terms, benefits or advantages of any fraternal insurance contract now issued or to be issu ed in this State, or the financial conditions of any society;
(2) Any false or misleading estimate or statement concerning the dividends or shares of surplus paid or to be paid by any society on any insurance contract; or
( 3) Any incomple~e comparison of an insurance con-

349

FRATERNAL BENEFIT SociETIES

56-1939

tract of one society with an insurance contract of another society or insurer for the purpose of inducing the lapse, forfeiture or surrender of any insurance contract. A comparison of insurance contracts is incomplete if it does not compare in detail:
(a) The gross rates, and the gross rates less any dividend or other reduction allowed at the date of the comparison; and
(b) Any increase in cash values, and all the benefits provided by each contract for the possible duration thereof as determined by the life expectancy of the insured; or if it omits from consideration:
(c) Any benefit or value provided in the contract;
(d) Any differences as to amount or period of rates; or
(e) Any differences in limitations or conditions or provisions which directly or indirectly affect the benefits.
In any determination of the incompleteness or misleading character of any comparison or statement, it shall be presumed that the insured had no knowledge of any of the contents of the contract involved.
Any person who violates any provision of this section or knowingly receives any compensation or commission by or in consequence of such violation, shall upon conviction be punished by a fine not less than one hundred ($100.00) dollars nor more than five hundred ($500) dollars or by imprisonment in the county jail not less than thirty (30) days nor more than one year, or both fine and imprisonment and shall in addition, be liable for a civil penalty in the amount of three times the sum received by such violator as compensation or commission, which penalty may be sued for and recovered by any person or society aggrieved for his or its own use and benefit in accordance with the provisions of civil practice.

56-1940

FRATERNAL B E NEFIT SociETIES

350

56-1940. Discrimination and rebates.-No society doing business in this State shall make or permit any unfair discrimination between insured members of the same class and equal expectation of life in the premiums , charged for certificates of insurance, in the dividends or other benefits payable thereon or in any other of the terms and conditions of the contracts it makes.
No society, by itself, or any other party, and no agent or solicitor, personally, or by any other party, shall offer, promise, allow, give, set-off, or pay, directly or indirectly, any valuable consideration or inductment to, or for insurance, on any risk authorized to be taken by such society, which is not specified in the certificate. No member shall receive or accept, directly or indirectly, any rebate of premium, or part thereof, or agent's or solicitor's commission thereon, payable on any certificate or receive or accept any favor or advantage or share in the dividends or other benefits to accrue on, or any valuable consideration or inducement not specified in the contract of insurance.
59-1941. Taxation.-Every society organized or licensed under this Chapter is hereby declared to be a charitable and benevolent institution, and all of its funds shall be exempt from all and every State, county, district, municipal and school tax other than taxes on real estate and office equipment.
56-1942. Exemptions.-Except as herein provided, societies shall be governed by this Chapter and shall be exempt from all other provisions of the insurance laws of this State, not only in governmental relations with the State, but for every other purpose. No law hereafter enacted shall apply to them, unless they be expressly designated therein.
56-1943. Exemption of certain societies.- Nothing contained in this Chapter shall be so construed as to affect or apply to:

I

351

FRATERNAL BENEFIT SociETIES

56-1943

(1) Grand or subordinate lodges of societies, orders or associations now doing business in this State which provide benefits exclusively through local or subordinate lodges;
(2) Orders, societies or associations which admit to membership only persons engaged in one or more crafts or hazardous occupations, in the same or similar lines of business, insuring only their own members, their families and descendants of members, and the ladies' societies of ladies' auxiliaries to such orders, societies or associations.
(3) Domestic societies which limit their membership to employees of a particularly city or town, designated firm, business house or corporation which provide for a death benefit of not more than four hundred ($400.00) dollars or disability benefits of not more than three hundred fifty ($350.00) dollars to any person in any one year, or both; or
(4) Domestic societies or associations of a purely religious, charitable or benevolent description, which provide for a death benefit of not more than four hundred ($400.00) dollars or for disability benefits of not more than three hundred fifty ($350.00) dollars to any one person in any one year, or both.
Any such society or association described in subsections (3) or (4) supra which provides for death or disability benefits for which benefit certificates are issued, and any such society or association included in subsection (4) which has more than one thousand (1,000) members, shall not be exempted from the provisions of this Chapter but shall comply with all requirements thereof.
No society which, by the provisions of this section, is exempt from the requirements of this Chapter, except any society described in subsection (2), supra, shall give or allow, or promise to give or allow to any person any comp~nsation for procuring new members.

56-1944

FRATE RNAL BEN EFIT SociETIES

352

Every society which provides for benefits in case of death or disability resulting solely from accident, and which does not obligate itself to pay natural death or sick benefits shall have all the privileges and the subject to all the applicable provisions and regulations of this Chapter except that the provisions thereof relating to medical examination, valuations of benefit certificates, and incontestability, shall not apply to such society.
The Commissioner may require from any society or association, by examination or otherwise, such information as will enable him to determine whether such society or association is exempt from the provisions of this Chapter.
Societies, exempted under the provisions of this section, shall also be exempt from all other provisions of the insurance laws of this State.
56-1944. Penalties.-Any person who wilfully makes a false or fraudulent statement in or relating to an application for membership or for the purpose of obtaining money from or a benefit in any society, shall upon conviction be fined not less than one hundred ($100.00) dollars nor more than five hundred ($500) dollars or imprisonment in the county jail not less than thirty (30) days nor more than one year, or both.
Any person who wilfully makes a false or fraudulent statement in any verified report or declaration under oath required or authorized by this Chapter, or of any material fact or thing contained in a sworn statement concerning the death or disability of a member for the purpose of procuring payment of a benefit named in the certificate, shall be guilty of perjury and shall be subject to the penalties therefor prescribed by law.
Any person who solicits membership for, or in any manner assists in procuring membership in, any society not licensed to do business in this State shall upon conviction be fined not less than fifty ($50.00) dollars nor more than two hundred ($200.00) dollars.

353

FARMERs' M uTUAL FIRE CoM PAN IE S

56-1945

Any person guilty of a wilful violation of, or neglect or refusal to comply with, the provisions of this Chapter for which a penalty is not otherwise prescribed, shall upon conviction be subject to a fine not exceeding five hundred ($500) dollars.
56-1945. Severability.-lf any provision of this Chapter or the application of such provision to any circumstance is held invalid, the remainder of this Chapter or the application of the provision to other circumstances, shall not be affected thereby.
FARMERS' MUTUAL FIRE INSURANCE COMPANIES
CHAPTER 56-20
56-2001. Scope of Chapter. 56-2002. Domestic farmers' mutual fire insurance com-
pany; definition. 56-2003. Organization; insurance; membership. 56-2004. Certificate of authority; qualifications. 56-2005. Fees. 56-2006. Voting by policyholders. 56-2007. Reinsurance. 56-2008. Bylaws. 56-2009. Bylaws as part of contracts. 56-2010. Provision against waiver of bylaws. 56-2011. Limit of operations of companies. 56-2012. Limit of single risk. 56-2013. Directors. 56-201 4. Directors' power to borrow. 56-2015. Annual meeting of members; notice. 56-2016. Annual statement; filing. 56-2017. Taxation of farmers' mutual fire insurance
companies. 56-2018. Examination by the Commissioner. 56-2019. Scope of members' liability. 56-2020. Suits. 56-2021. Conversion to a mutual insurer. 56-2022. Other provisions applicable.

56-2001

FARMER s' M uTLTAL FIRE CoMPANIES

354

56-2001. Scope of Chapter.-This Chapter applies only to domestic farmers' mutual fire insurance companies.
56-2002. Domestic farmers' mutual fire insurance companies; definition.-Domestic farmers' mutual fire insurance companies are companies organized for the purpose of insurance on the assessment or co-operative plan against loss, or damage by fire, lightning, windstorm, extended coverage, and hail, and for all, or either of such purposes.
Such insurers may write insurance against said hazards on such risks as their charter and bylaws may provide.
56-2003. Organization; insurance; membership.Twenty (20) or more persons, a majority of whom are citizens of this State, may become a body corporate for the purpose of transacting insurance upon the farmers' mutual fire insurance plan as defined above, by making an application for a charter signed by the persons applying for the charter or their counsel in triplicate specifying:
( 1) The name of the proposed corporation. The name shall contain the words "Farmers' Mutual" and shall not be so similar to any name already used by any other corporation authorized to transact business in this State as to be confusing or misleading;
(2) The purpose for which the corporation is formed;
(3) The name of the county in this State in which the corporation will have its principal office, and the names of not more than three other contiguous counties in which it proposes to operate;
(4) The name and address of each incorporator;
(5) The names and addresses of those composing the board of directors of the corporation in which the man-

355

FARME R S ' l'v1 uTUAL FIRE CoMPANIE S

56-2004

agement shall be vested until the first meeting of the members;
(6) Such other provisiOns, not inconsistent with the provisions of this Chapter or other applicable laws, as are deemed desirable by the incorporators, or as._ may be required by the Commissioner.
The corporate charter shall be granted by the Secretary of State as provided in Chapter 56-15.
56-2004. Certificate of authority; qualifications.-(!) No person shall transact or attempt to transact business as a farmers' mutual fire insurance company unless so authorized by a currently effective certificate of authority issued by the Commissioner.
(2) The Commissioner shall not issue or permit to exist any certificate of authority as to any corporation or insurer not currently qualified therefor unless it is shown to the Satisfaction of the Commissioner that:
(a) It has received bona fide applications from not less than twenty-five (25) citizens of this State for not less than one hundred thousand ($100,000) dollars of insurance covering farm property located in the county or counties in which it is organized to transact business, which shall not be more than four contiguous counties, and with not more than the maximum amount of insurance permitted on a single risk under section 56-2012 below;
(b) It has collected in cash the first payment or premium or assessment required to be paid in advance by each such applicant for its insurance, according to the company's bylaws or has received from each such applicant such form of obligation, if any, as may be provided for in the bylaws to cover liability for payment of initial assessments and such future assessments as may be levied;
(c) There is on deposit to its credit, in a bank located

56-2005

FARME Rs' M u T u AL FIRE CoMPANIE S

' 356

in the county of its domicile, funds representing a surplus of its assets over its liabilities in the amount of not less than ten thousand ($10,000) dollars;
(d) At the time of filing the petition for a charter as required under section 56-2003, the organizers of the proposed company have filed with the Commissioner a qualified bond in the sum of five thousand ($5,000) dollars with good and sufficient security, subject to the Commissioner's approval. The bond shall be conditioned for the prompt return to members of all money collected from them in advance and for payment of all indebtedness of the company if the organization of the company is not completed within two years after the date of the granting of the charter.
(e) It must otherwise be in compliance with the requirements of this Chapter.
56-2005. Fees.-Farmers' mutual fire insurance companies shall pay no annual fees or charges other than an annual license fee of twenty-five ($25.00) dollars.
56-2006. Voting by policyholders.-Each policyholder in a farmers' mutual fire insurance company shall be entitled to only one vote in all policyholders' meetings. No voting by proxy shall be permitted unless it is specially authorized in the bylaws.
56-2007. Reinsurance.-A farmers' mutual fire insurance company shall not accept reinsurance of the risk of any other insurer.
56-2008. Bylaws.-The bylaws shall state in time and manner of the levy and payment of all premiums or assessments for all insurance written by the company.
They shall also fix the liability of the policyholders for all losses accrued while the policies are in force, in addition to the regular premium or assessment of the

357

FARMERs ' MuTUAL FIRE CoMPANIES

56-2012

same; and the time and manner of payment of such liability.
The bylaws may be amended, and any such amendment shall be filed with the Commissioner within thirty (30) days after its adoption.

The bylaws may contain also provisions for the exclusion of any member of the company who refuses or neglects to pay his assessment or for any other reasons satisfactory to the directors to be excluded from the insurer.
56-2009. Bylaws as part of contracts.-The portion of the bylaws which affect the insuring agreement shall be contained in the policy. Each policy issued by the insurer shall contain a statement of the contingent liability, if any, of its members.

56-2010. Provision against waiver of bylaws.-Such companies may provide in the policy that officers and agents elected by them do not have the power to waive any provision of the bylaws.

56-2011. Limit of operations of companies.-A farmers' mutual fire insurance company shall not issue policies of insurance or otherwise insure property located in any county in this State other than the county in which it has its home office as specified in its original charter and in not more than three other contiguous counties in this State.

56-2012. Limit of single risk.-The maximum amount of insurance that a farmers' mutual fire insurance company may retain on any subject or subjects of insurance reasonably exposed to loss from the same fire, shall not exceed the amount prescribed in the following schedule:

Amount of Insurance in Force
$ 100,000 but less than $ 250,000 $ 250,000 but less than $ 400,000 $ 400,000 but less than $ 600,000

Maximum Risk
$ 2,000 $ 2,500 $ 3,000

56-2013

FARMERS' MuTUAL FIRE CoMPANIES

358

$ 600,000 but less than $ 900,000 $ 900,000 but less than $1,200,000 $1,200,000 but less than $1,500,000 $1,500,000 but less than $2,000,000 $2,000,000 but less than $2,500,000 $2,500,000 but less than $3,000,000 $3,000,000 but less than $3,500,000 $3,500,000 and over

$ 4,000 $ 5,000 $ 5,500 $ 6,000 $ 7,000 $ 8,000 $ 9,000 $10,000

The classification of all risks in the above schedule and the percentage given in each shall be uniformly fixed and governed by the bylaws of the insurer.
In determining the amount at risk and retained by the insurer, any valid and applicable reinsurance authorized shall be deducted from the gross amount of risk directly assumed by the insurer.

56-2013. Directors.-In companies organized under the provisions of this Chapter, the number of directors shall be not less than three. A majority of the board of directors shall be a quorum for the transaction of business. No person shall be or act as a director of the insurer who does not have currently effective insurance in force in the insurer.

56-2014. Directors' power to borrow.-The board of directors of a farmers' mutual fire insurance company may, at any time, borrow such sum or sums of money as they may deem necessary to pay its losses, accrued or unaccrued, and may pledge the assets of the company including the contingent liability of policyholders for such losses as security for such loan.

56-2015. Annual meeting of members; notice.-An annual meeting of such company shall be held at such a time as is fixed in the bylaws of the company. Special meetings may be held for such purposes and in such manner as may be specified in the insurer's bylaws, consistent with this Chapter. All such meetings shall be held in the insurer's county of domicile. Notice of such meeting shall be mailed or otherwise given to each mem-

l I

359

FARMERS' MuTUAL FIRE CoMPANIES

56-2021

ber not less than twenty (20) days in advance of the meeting, and notice of any special meeting called by the board of directors shall be given in writing, not less than ten (10) days in advance, stating the purpose of the meeting so called.
56-2016. Annual statement; filing.-Every fa-rmers' mutual fire insurance company shall, on or before March 1st of each year, make and file with the Commissioner an annual statement of its business as of the December 31st next preceding, on such form as the Commissioner may prescribe.
56-2017. Taxation of farmers' mutual fire insurance company.-Any company organized under this Chapter shall be exempt from all taxes, costs and fees, including those listed in Chapter 56-13, except as herein expressly provided and except taxes payable upon real and personal property owned by the company.
56-2018. Examination by the Commission.-The Commissioner shall at least once in five years, or oftener if he deems necessary, examine farmers' mutual fire insurance companies. The costs of such examination shall be paid by the company.
56-2019. Scope of members' liability.-No member of such insurer shall be liable to assessment to pay losses and expenses accruing prior to the time his policy became effective nor for losses and expenses accruing after termination or expiration of the policy.

56-2020. Suits.-Such companies as are organized under this Chapter may sue and be sued in the name under which they are doing business.

56-2021. Conversion to a mutual insurer.-Any ~om pany organized under the provisions of this Chapter may be converted into a mutual insurance company by complying with the applicable provisions of Chapter 56-15.

56-2022

RECIP ROCAL I NSU RERS

360

56-2022. Other provisions applicable.-In addition to the provisions of this Chapter, farmers' mutual fire insurance companies shall be subject to the following Chapters of this Title to the extent so applicable: Chapter 56-1; Chapter 56-2; Chapter 56-6; Chapter 56-7 and Chapter 56-14.
CHAPTER 56-21
RECIPROCAL INSURERS
56-2101. "Reciprocal" insurance defined. 56-2102. "Reciprocal insurer" defined; authorized. 56-2103. Scope of Chapter; existing insurers. 56-2104. Insuring powers of reciprocals. 56-2105. Name; suits. 56-2106. Attorney. 56-2107. Surplus funds required. 56-2108. Organization of reciprocal insurer. 56-2109. Certificate of authority. 56-2110. Power of attorney. 56-2111. Modifications. 56-2112. Attorney's bond. 56-2113. Deposit in lieu of bond. 56-2114. Action of bond. 56-2115. Designation of attorney; service of process;
judgment. 56-2116. Advances to insurer. 56-2117. Annual statement. 56-2118. Financial condition; method of determining. 56-2119. Who may be subscribers. 56-2120. Subscribers' advisory committee. 56-2121. Subscribers' liability. 56-2122. Subscribers' liability on judgment. 56-2123. Assessments. 56-2124. Time limit for assessments. 56-2125. Aggregate liability. 56-2126. Nonassessable policies. 56-2127. Distribution of profits. 56-2128. Subscribers' share in assets. 56-2129. Merger or conversion. 56-2130. Impaired reciprocals.

361

RECIPROCAL INSURERS

56-2104

56-2101. "Reciprocal" insurance defined.-"Reciprocal" insurance is that resulting from an interexchange among persons, known as "subscribers," of reciprocal agreements of indemnity, the interexchange being effectuated through an "attorney-in-fact" common to all such persons: Provided, however, that reciprocal agreements or contracts of indemnity executed prior to March 8, 1960 creating funds for the purpose of satisfying the obligations of self-insured employers under the Workmen's Compensation Act of Georgia shall not be deemed "reciprocal insurance" as herein defined. (Acts 1960, pp. 289, 641; 1964, pp. 287, 288.)
Editorial Note.-Acts 1964, p. 287, added the proviso relating to workmen's compensation insurance.
56-2102. "Reciprocal insurer" defined; authorized.(1) A "reciprocal insurer" means an unincorporated aggregation of subscribers operating individually and collectively through an attorney-in-fact to provide reciprocal insurance among themselves.
(2) A reciprocal insurer may be authorized to transact insurance in this State subject to the applicable provisions of this Title.
56-2103. Scope of chapter; existing insurer.-(1) All authorized reciprocal insurers shall be governed by those sections of this Chapter not expressly made applicable to domestic reciprocal insurers.
(2) Existing authorized reciprocal insurers shall after the effective date of this Act comply with the provisions of this Chapter, and shall make such amendments to their subscribers' agreement, power of attorney, policies and other documents and accounts and perform such other acts as may be required for such compliance.
56-2104. Insuring powers of reciprocals.-(1) A reciprocal insurer may, upon qualifying therefor as provided for by this Title, transact any kind or kinds of insurance defined by this Title, other than life or title insurance.

56-2105

RECIPROCAL INS URERS

362

(2) Such an insurer may purchase reinsurance upon the risk of any subscriber, and may grant reinsurance as to any kind of insurance it is authorized to transact direct.
56-2105. Name; suits.-A reciprocal insurer shall:
(1) Have and use a business name. The name shall include the word "reciprocal," or "interinsurer," or "interinsurance," or "exchange," or "underwriters," or "underwriting;"
(2) Sue and be sued in its own name.
56-2106. Attorney.-{1) "Attorney," as used in this Chapter, refers to the attorney-in-fact of a reciprocal insurer. The attorney may be an individual, firm or corporation.
(2) The attorney of a foreign or alien reciprocal insurer, which insurer is duly authorized to transact insurance in this State, shall not, by virtue of discharge of his duties as such attorney with respect to the insurer's transactions in this State, be thereby deemed to be doing business in this State within the meaning of any laws of this State applying to foreign firms or corporations.
(3) The office of the attorney shall be maintained at such place as is designated by the subscribers in the power of attorney.
56-2107. Surplus funds required.-(1) A domestic reciprocal insurer hereunder formed, if it has otherwise complied with the applicable provisions of this Title, may be authorized to transact insurance if it has and thereafter maintains surplus funds as follows:
(a) To transact property insurance, surplus funds of not less than two hundred thousand ($200,000) dollars;
(b) To transact casualty insurance, surplus funds of not less than two hundred thousand ($200,000) dollars.

363

RECIPROCAL INSURERS

56-2108

(2) In addition to surplus required to be maintained under subsection (1) above, the insurer shall have, when first so authorized, expendable surplus in such amount as is required of a like foreign reciprocal insurer under section 56-307.
,
(3) A domestic reciprocal insurer may be authorized to transact additional kinds of insurance if it has otherwise complied with the provisions of this Title therefor and possesses and so maintains surplus funds in amount equal to the minimum paid-in capital stock required of a stock insurer for authority to transact a like combination of kinds of insurance.
(4) There shall be maintained at all times assets in cash, premium balances or securities, authorized by the laws of this State for the investment of assets of insurance companies doing a similar business in an amount equivalent to the pro rata unearned premiums or deposits of subscribers and reserves for losses outstanding and unpaid or any other liabilities of the reciprocal insurer.
56-2108. Organization of reciprocal insurer.-(1) Twenty-five (25) or more persons domiciled in this State may organize a domestic reciprocal insurer and make application to the Commissioner for a certificate of authority to transact insurance.
(2) The proposed attorney shall fulfill the requirements of and shall execute and file with the Commissioner when applying for a certificate of authority, a declaration setting forth:
(a) The name of the insurer;
(b) The location of the insurer's principal office, which shall be the same as that of the attorney and shall be maintained within this State;
(c) The kinds of insurance proposed to be transacted ;
(d) The names and addresses of the original subscribers;

56-2109

R ECIPROCAL IN SU RE R S

364

(e) The designation and appointment of the proposed attorney and a copy of the power of attorney;
(f) The names and addresses of the officers and directors of the attorney, if a corporation, or its members if a firm;
(g) The powers of the subscribers' advisory committee, and the names and terms of office of the members thereof;
(h) That all monies paid to the reciprocal shall, after deducting therefrom any sum payable to the attorney, be held in the name of the insurer and for the purposes specified in the subscribers' agreement;
(i) A copy of the subscribers' agreement;
(j) A statement that each of the original subscribers has in good faith applied for insurance of a kind proposed to be transacted, and that the insurer has received froin each such subscriber the full premium or premium deposit required for the policy applied for, for a term of not less than six months at an adequate rate theretofore filed with and approved by the Commissioner.
(k) A statement of the financial condition of the insurer, a schedule of its assets, and a statement that the surplus as required by section 56-2107 is on hand; and
(l) A copy of each policy, endorsement and application form it then proposes to issue or use.
Such declaration shall be acknowledged by the attorney before an officer authorized to take acknowledg ments.
56-2109. Certificate of authority.-(1) The certificate of authority to transact business of a reciprocal insurer shall be issued to its attorney in the name of the insurer.

365

RECIPROCAL INSURERS

56-2110

(2) The Comissioner may refuse, suspend or revoke the certificate of authority to transact business in addition to other grounds therefor, for failure of the attorney to comply with any provision of this Title.
(3) Said certificate shall be renewed annually and shall be issued and renewed by complying with the provisions of fees required of insurers under this Title.
(4) Each holder of such certificate of authority to transact business of a reciprocal insurer shall pay all fees required elsewhere by this Title and shall pay all of the taxes provided by law on companies doing a like business in this State.
56-2110. Power of attorney.-(1) The rights and powers of the attorney of a reciprocal insurer shall be as provided in the power of attorney given it by the subscribers.
(2) The power of attorney must set forth:
(a) The powers of the attorney;

(b) That the attorney is empowered to accept service of process on behalf of the insurer in actions against the insurer upon contracts exchanged;
(c) The general services to be performed by the attorney;
(d) The maximum amounts to be deducted from advance premiums or deposits to be paid to the attorney and the general items of expense in addition to losses, to be paid by the insurer; and
(e) Except as to nonassessable policies, a prov1s10n for a contingent several liability of each subscriber in a specified amount, which amount shall be not less than one nor more than ten (10) times the premium or premium deposit stated in the policy.

56-2111

RECIPROCAL INSURERS

366

(3) The power of attorney may:
(a) Provide for the right of substitution of the attorney and revocation of the power of attorney and rights thereunder;
(b) Impose such restrictions upon the exercise of the power as are agreed upon by the subscribers;
(c) Provide for the exercise of any right reserved to the subscribers directly or through their advisory committee; and
(d) Contain other lawful provisions deemed advisable.
(4) The terms of any power of attorney or agreement collateral thereto shall be reasonable and equitable, and shall be subject to review and approval by the Commissioner.
(5) A copy of the power of attorney shall be furnished each subscriber.
56-2111. Modifications.-Modifications of the terms of the subscribers' agreement or of the power of attorney of a domestic reciprocal insurer shall be made jointly by the attorney and the subscribers' advisory committee. No such modification shall be effective until has been filed with and approved by the Commissioner and no such modification shall be effective retroactively, nor as to any insurance contract issued prior thereto.
56-2112. Attorney's bond. - (1) Concurrently with the filing of the declaration provided for in section 56-2108, the attorney of a domestic reciprocal insurer shall file with the Commissioner a bond in favor of the Commissioner for the benefit of all persons damaged as a result of breach by the attorney of the conditions of his bond as set forth in subsection (2) hereof. The bond shall be executed by the attorney and by an authorized corporate surety, and shall be subject to the Commissioner's approval.

367

RECIPROCAL INSURERS

56-2115

(2) The bond shall be in the penal sum of twentyfive thousand ($25,000) dollars, aggregate in form, conditioned that the attorney will faithfully account for all monies and other property of the insurer coming into his hands, and that he will not withdraw or appropriate to his own use from the funds of the insurer, any monies or property to which he is not entitled under the power of attorney.
(3) The bond shall provide that it is not subject to cancellation unless thirty (30) days' advance notice in writing of cancellation is given both the attorney and the Commissioner.
56-2113. Deposit in lieu of bond.-In lieu of the bond required under section 56-2112, the attorney may maintain on deposit with the State through the office of the Commissioner, a like amount in cash or in value of securities qualified for deposit under Chapter 56-10, and subject to the same conditions as the bond.
56-2114. Action on bond.-Action on the attorney's bond or to recover against any such deposit made in lieu thereof may be brought at any time by one or more subscribers suffering loss through a violation of its conditions, or by the Commissioner as liquidator of the insurer. Amounts recovered on the bond shall be deposited in and become part of the insurer's funds. The total aggregate liability of the surety shall be limited to the amount of the penalty of such bond.
56-2115. Designation of attorney; service of process; judgment.-(1) Every reciprocal insurer authorized to transact business in this State shall file with the Commissioner a written statement or power of attorney duly signed and sealed, appointing and authorizing some person, who shall be a resident of this State, to acknowledge or accept service of process for and in behalf of such reciprocal insurer, and upon whom all process may be served against said reciprocal insurer, in all proceedings that may be instituted against such reciprocal insurer

56-2116

R ECIPROCAL INSURERS

368

in any of the courts of this State or of the United States, and consenting that service of process upon any such agent or attorney appointed under the provisions of this section shall be as valid as if served on such reciprocal insurer.
(2) Legal process shall be served upon such reciprocal insurer by serving the insurer's attorney at his principal office in this State or by serving the Commissioner as the insurer's agent.
(3) Any judgment based upon legal process so served shall be binding upon each of the insurer's subscribers as their respective interests may appear, but in an amount not exceeding their respective contingent liabilities if any, the same as though personal service of process was had upon each such subscriber.
56-2116. Advance to insurer.-The attorney or other parties may advance to a domestic reciprocal insurer upon reasonable terms such funds as it may require from time to time in its operations. Sums so advanced shall not be treated as a liability of the insurer, and, except upon liquidation of the insurer, shall not be withdrawn or repaid except out of the insurer's realized earned surplus in excess of its minimum required surplus. No such withdrawal or repayment shall be made without the advance approval of the Commissioner.
56-2117. Annual statement.-(1) The annual financial statement of a reciprocal insurer shall be made and filed with the Commissioner by its attorney, on or before March 1st of each year.
(2) The information required by this Title of other insurers doing a like insurance business in this State shall be included in the annual financial statement.
(3) The statement shall be supplemented by such information as may be required by the Commissioner relative to the affairs and transactions of the attorney, insofar as they relate to the reciprocal insurer.

369

RECIPROCAL INSURERS

56-2119

56-2118. Financial condition; method of determining. -In determining the financial condition of a reciprocal insurer the Commissioner shall apply the following rules:
(1) He shall charge as liabilities the same reserves as are required of incorporated insurers issuing nonassessable policies on a reserve basis;
(2) The surplus deposits of subscribers shall be allowed as assets, except that any premium deposits delinquent for ninety (90) days shall first be charged against such surplus deposit;
(3) The surplus deposits of subscribers shall not be charged as a liability.
(4) All premium deposits delinquent less than ninety (90) days shall be allowed as assets;
(5) An assessment levied upon subscribers, and not collected, shall not be allowed as an asset;
( 6) The contingent liability of subscribers shall not be allowed as an asset; and
(7) The computation of reserves shall be based upon premium deposits other than membership fees and without any deduction for expenses and the compensation of the attorney.
56-2119. Who may be subscribers.-Individuals, partnerships, and corporations of this State may make ap- ~ plication, enter into agreement for and hold policies or contracts in or with and be a subscriber of any domestic, foreign, or alien reciprocal insurer. Any corporation now or hereafter organized under the laws of this State shall, in addition to the rights, powers, and franchises specified in its charter, have full power and authority as a subscriber to exchange insurance contracts through such reciprocal insurer. The right to exchange such contracts is hereby declared to be incidental to the purposes for which such corporations are organized and to be as fully granted as the rights and powers expressly con-

56-2120

RECIPROCAL INSURERS

370

ferred upon such corporations. Government or governmental agencies, state or political subdivisions thereof, boards, associations, estates, trustees or fiduciaries are authorized to exchange nonassessable reciprocal interinsurance contracts with each other and with individuals, partnerships and corporations to the same extent that individuals, partnerships and corporations are herein authorized to exchange reciprocal interinsurance contracts. Any officer, representative, trustee, receiver, or legal representative of any such subscriber shall be recognized as acting for or on its behalf for the purpose of such contract but shall not be personally liable upon such contract by reason of acting in such representative capacity.
56-2120. Subscribers' advisory committee.-(1) The advisory committee of a domestic reciprocal insurer exercising the subscribers' rights shall be selected under such rules as the subscribers adopt.
(2) The committee shall:
(a) Supervise the finances of the insurer;
(b) Supervise the insurer's operations to such extent as to assure conformity with the subscribers' agreement and power of attorney;
(c) Procure the audit of the accounts and records of the insurer and of the attorney at the expense of the insurer; and
(d) Have such additional powers and functions as may be conferred by the subscribers' agreement.
56-2121. Subscribers' liability.-(1) The liability of each subscriber, other than as to a nonassessable po.Iicy, for the obligations of the reciprocal insurer shall be an individual, several and proportionate liability, and not joint.
(2) Except as to a nonassessable policy, each sub-

371

RECIPROCAL INSURERS

56-2123

scriber shall have a contingent assessment liability, in the amount provided for in the power of attorney or in the subscribers' agreement, for payment of actual losses and expenses incurred while his policy was in force. Such contingent liability may be at the rate of not less than one nor more than ten (10) times the premium or premium deposit stated in the policy, and the maximum aggregate thereof shall be computed in the manner set forth in section 56-2125.
(3) Each assessable policy issued by the insurer shall contain a statement of the contingent liability.
56-2122. Subscribers' liability on judgment.-(!) No action shall lie against any subscriber upon. any obligation claimed against the insurer until a final judgment has been obtained against the insurer and remains unsatisfied for thirty (30) days.
(2) Any such judgment shall be binding upon each subscriber only in such proportion as his interests may appear and in amount not exceeding his contingent liability, if any.
56-2123. Assessments.-(!) Assessments may from time to time be levied upon subscribers of a domestic reciprocal insurer liable therefor under the terms of their policies by the attorney upon approval in advance by the subscribers' advisory committee and the Commissioner; or by the Commissioner in liquidation of the insurer.
(2) Each subscriber's share of a deficiency for which an assessment is made, but not exceeding in any event his aggregate contingent liability as computed in accordance with section 56-2125, shall be computed by applying to the premium earned on the subscriber's policy or policies during the period to be covered by the assessment, the ratio of the total deficiency to the total premiums earned during such period upon all policies subject to the assessment.
(3) In computing the earned premiums for the pur-

56-2124

RECIPROCAL lN S U RERS

372

poses of this section, the gross premium received by the insurer for the policy shall be used as a base, deducting therefrom solely charges not recurring upon the renewal or extension of the policy.
(4) No subscriber shall have an offset against any assessment for which he is liable, on account of any claim for unearned premium or losses payable.
56-2124. Time limit for assessments.-Every subscriber of a domestic reciprocal insurer having contingent liability shall be liable for, and shall pay his share of any assessment, as computed and limited in accordance with this Chapter, if:
( 1) While his policy is in force or within one year after its termination, he is notified by either the attorney or the Commissioner of his intentions to levy such assessment; or
(2) If an order to show cause why the receiver, conservator, rehabilitator or liquidator of the insurer should not be appointed is issued while his policy is in force or within one year after its termination.
56-2125. Aggregate liability.-No one policy or subscriber as to such policy, shall be assessed or charged with an aggregate of contingent liability as to obligations incurred by a domestic reciprocal insurer in any one calendar year, in excess of the amount provided for in the power of attorney or in the subscriber's agreement, computed solely upon premium earned on such policy during that year.
56-2126. Nonassessable policies.-(!) If a reciprocal insurer has a surplus of assets over all liabilities at least equal to the minimum paid-in capital stock required of a domestic stock insurer authorized to transact like kinds of insurance, upon application of the attorney and as approved by t!le subscribers' advisory committee the Commissioner shall issue this certificate authorizing

373

RECIPROCAL INSURERS

56-2127

the insurer to extinguish the contingent liability of subscribers under its policies then in force in this State, and to omit provisions imposing contingent liability in all policies delivered or issued for delivery in this State for so long as all such surplus remains unimpaired.
(2) Upon impairment of such surplus, the Commissioner shall forthwith revoke the certificate. Such revocation shall not render subject to contingent liability any policy then in force and for the remainder of the period for which the premium has theretofore been paid; but after such revocation no policy shall be issued or renewed without providing for contingent assessment liability of the subscriber.
(3) The Commissioner shall not authorize a domestic reciprocal insurer so to extinguish the contingent liability of any of its subscribers or in any of its policies to be issued, unless it qualifies to and does extinguish such liability of all its subscribers and in all such policies for all kinds of insurance transacted by it. Except, that if required by the laws of another state in which the insurer is transacting insurance as an authorized insurer, the insurer may issue policies providing for the contingent liability of such of its subscribers as may acquire such policies in such state, and need not extinguish the contingent liability applicable to policies theretofore in force in such state.
56-2127. Distribution of profits.-A reciprocal insurer may from time to time return to its subscribers any unused premiums, savings, credits, or profits accruing to their accounts. Any such distribution shall not unfairly discriminate between classes of risks, or policies, or between subscribers, but such distribution may vary as to classes of subscribers, based upon the experience of such subscribers. In no event shall there be any such distribution whatsoever, by a domestic reciprocal insurer, while notes or advances to the minimum surplus as hereinbefore required are outstanding, unless the Commissioner shall first approve such distribution.

56-2128

RECIPROCAL INSURERS

374

56-2128. Subscribers' share in assets.-Upon the liquidation of a domestic reciprocal insurer, its assets remaining after discharges of its indebtedness and policy obligations, the return of any contributions of the attorney or other persons to its surplus made as provided in section 56-2116, and the return of any unused premiums, savings, or credit then standing on subscribers' accounts, shall be distributed to its subscribers who were such within the twelve (12) months prior to the last termination of its certificate of authority, according to such reasonable formula as the Commissioner may approve.
56-2129. Merger or conversion.-(1) A domestic reciprocal insurer upon affirmative vote of not less than two-thirds (%) of its subscribers who vote on such merger pursuant to due notice and the approval of the Commissioner of the terms therefor, may merge with another reciprocal insurer or be converted to a stock or mutual insurer.
(2) Such a stock or mutual fnsurer shall be subject to the same capital or surplus requirements and shall have the same rights as a like domestic insurer transacting like kinds of insurance.
(3) The Commissioner shall not approve any plan for such merger or conversion which is in equitable to subscribers, or which, if for conversion to a stock insurer, does not give each subscriber preferential right to acquire stock of the proposed insurer proportionate to his interest in the reciprocal insurer as determined in accordance with section 56-2128 and a reasonable length of time within which to exercise such right.
(4) Reinsurance of all or substantially all of the insurance in force of a domestic reciprocal insurer in another insurer shall be deemed to be a merger for the purposes of this section.
56-2130. Impaired reciprocals.-(1) If the assets of a domestic reciprocal insurer are at any time insufficient

375

INsURANCE CoNTRACT IN GENERAL

56-2130

to discharge its liabilities, other than any liability on account of funds contributed by the attorney or others, and to maintain the required surplus, its attorney shall forthwith make up the deficiency or levy an assessment upon the subscribers for the amount needed to make up the deficiency; but subject to the limitation set forth in the power of attorney or policy.
(2) If the attorney fails to make up such deficiency or to make the assessment within thirty (30) days after the Commissioner orders him to do so, or if the deficiency is not fully made up within sixty ( 60) days after the date the assessment was made, the insurer shall be deemed insolvent and shall be proceeded against as authorized by this Title.
(3) If liquidation of such an insurer is ordered, an assessment shall be levied upon the subscribers for such an amount, subject to limits as provided by this Chapter, as the Commissioner determines to be necessary to discharge all liabilities of the insurer, exclusive of any funds contributed by the attorney or other persons, but including the reasonable cost of the liquidation.

CHAPTER 56-22 RESERVED

CHAPTER 56-23 RESERVED

CHAPTER 56-24
THE INSURANCE CONTRACT IN GENERAL
56-2401. Scope of Chapter. 56-2402. "Policy" defined. 56-2403. "Premium" defined. 56-2404. Insurable interest; personal insurance. 56-2405. Insurable interest; property insurance. 56-2406. Capacity to contract for insurance; minors. 56-2407. Consent of insured required.

INSURANCE CoNTRACT IN GENERAL

376

56-2408. Applications as evidence. 56-2409. Representations in applications. 56-2410. Filing and approval of forms. 56-2411. Grounds for disapproval of forms. 56-2412. Waiver of standard or uniform provisions. 56-2413. Contents of policies in general. 56-2414. Additional; contents of policies. 56-2415. Charter or bylaw provisions; incorporation into
policy.
56-2416. Execution of policies. 56-2417. Underwriters' and combination policies. 26-2418. Validity of noncomplying forms. 26-2419. Construction of policies. 56-2420. Binders. 56-2421. Delivery of policy. 56-2422. Renewal by certificate or endorsements. 56-2423. Assignment of policies. 56-2424. Payment discharges insurer. 56-2425. Minor may give acquittance. 56-2426. Simultaneous deaths. 56-2427. Forms for proof of loss to be furnished. 56-2428. Claims administration not waiver. 56-2429. Time policy or contract effective; how calcu- .
late d. 56-2430. Cancellation. 56-2430.1. Same; reasons for cancellation; procedure. 56-2430.2. Cancellation where interests of lienholders af-
fected. 56-2431. Governmental units empowered to make de-
ductions and enter into agreements. 56-2432. Participation by employees to be voluntary. 56-2433. Insurance not to affect rights under Work-
men's Compensation Act. 56-2434. Local and special laws unaffected. 56-2435. Authorizing corporate surety in lieu of per-
sonal surety. 56-2436. Deposit and withdrawal of funds covered by
bond. 56-2437. Governmental motor vehicles; insurance to
cover injuries. 56-2438. Guaranteed arrest bond certificates. 56-2439. Exclusionary clause; aircraft insurance.

377

INsU RANCE CoNTRACT IN GENERAL

56-2404

56-2401. Scope of Chapter.-This Chapter applies to all insurance policies and to annuities and pure endowment contracts as defined in section 56-2601 except:
( 1) Reinsurance ;
(2) Policies or contracts not issued for delivery in this State nor delivered in this State, except as provided in section 56-2410(5);
(3) Ocean marine and foreign trade insurances;
(4) Title insurance, except as to the following provisions:
(a) Section 56-2406;
(b) Section 56-2410;
(c) Section 56-2411;
(d) Section 56-2415;
(e) Section 56-2416;
(f) Section 56-2419.
56-2402. "Policy" defined.-"Policy" means the written contract of or written agreement for or effecting insurance, and includes all clauses, riders, endorsements and papers attached or issued and delivered for attachment thereto and a part thereof.
56-2403. "Premium" defined. - "Premium" is the consideration for insurance, by whatever name called. Any "assessment," or any "membership," "policy," "survey," "inspection," "service" or similar fee or charge in consideration for an insurance contract is deemed part of the premium.
56-2404. Insurable interest; personal insurance.-(!) "Insurable interest" with reference to personal insurance is an interest based upon a reasonable expectation of pe-

56-2405

INsURANCE CoNTRACT IN GENERAL

378

cuniary advantage through the continued life, health or bodily safety of another person and consequent loss by l!'eason of his death or disability, or a substantial interest engendered by love and affection in the case of individuals closely related by blood or by law.
(2) An individual has an unlimited insurable interest in his own life, health and bodily safety and may lawfully take out a policy of insurance on his own life, health or bodily safety and have the same made payable to whomsoever he pleases, regardless of whether the beneficiary so designated has an insurable interest.
(3) An insurable interest must exist at the time the contract of personal insurance becomes effective, but this requirement need not exist at the time the loss occurs.
(4) Any personal insurance contract procured or caused to be procured upon another individual is void unless the benefits under such contract are payable to the individual insured or his personal representative, or to a person having, at the time when such contract was made, an insurable interest in the individual insured. In the case of such void contract, the insurer shall not be liable on the contract, but shall be liable to repay to such person or persons who have paid the premiums, all premium payments without interest.
56-2405. Insurable interest; property insurance. (1) No insurance contract on property or of any interest therein or arising therefrom shall be enforceable except for the benefit of persons having, at the time of the loss, and insurable interest in the things insured.
(2) "Insurable interest" as used in this section means any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment.
(3) The measure of an insurable interest in property is the extent to which the insured might be damnified by loss, injury, or impairment thereof.

3 79

INsURANCE CoNTRACT IN GENERAL

56-2406

56-2406. Capacity to contract for insurance; minors. -(1) Any person of competent legal capacity may contract for insurance.
(2) A minor not less than fifteen (15) years of age as determined at nearest birthday may, notwithstanding such minority, contract for annuities, endowments, life insurance and accident and sickness insurance on his own life or body or the life or body of any person in whom he has an insurable interest. Such a minor shall, notwithstanding such minority, be deemed competent to exercise all rights and powers with respect to or under any contract or policy for annuities, endowments, life insurance and accident and sickness insurance on his own life or body or on the person of another, as though of full legal age, and may surrender his interest therein and give a valid discharge for any benefit accruing or money payable thereunder. The minor shall not, by reason of his minority, be entitled to rescind, avoid or repudiate the contract, nor to rescind, avoid or repudiate any exercise of a right or privilege thereunder, except that such minor, not otherwise emancipated, shall not be bound by any unperformed agreement to pay, by promissory note or otherwise, any consideration or premium on any such contract or policy. Any such contract or policy for annuities, endowments, life insurance and accident and sickness insurance procured by or for a minor under this subsection shall be made payable either to the minor or his estate or to a person having an insurable interest in the life of such minor.
(3) A minor not less than fifteen (15) years of age as determined at nearest birthday may, notwithstanding such minority, contract for insurance on other subjects of insurance in which he has an insurable interest. A minor shall be bound by any settlement made in connection with any insurance contract so issued. The minor shall not, by reason of his minority, be entitled to rescind, avoid or repudiate the contract, nor to rescind, avoid or repudiate any exercise of a right or privilege thereunder, except that such minor, not otherwise emancipated, shall not be bound by any unperformed agreement to pay, by promissory

56-2409

INS URANCE CoNTRACT IN GENERAL

380

note or otherwise, any premium on any such insurance contract.
56-2407. Consent of insured required.-No life or accident and sickness insurance contract upon an individual, except a contract of group life insurance or of group or blanket accident and sickness insurance, shall be made or effectuated unless at the time of the making of the contract the individual insured, being of competent legal capacity to contract, applies therefor or consents in writing thereto, except in the following cases:
(1) A spouse may effectuate such insurance upon the other spouse.
(2) Any person having an insurable interest in the life of a minor, or any person upon whom a minor is dependent for support and maintenance, may effectuate insurance upon the life of or pertaining to such minor.
(3) An application for a family policy may be signed by either parent, .stepparent or by husband or wife.
(4) An insurer shall be entitled to rely upon all statements, declarations and representations made by an applicant for insurance relative to the insurable interest which such applicant has in the insured; and no insurer shall incur any legal liability except as set forth in the policy, by virtue of any untrue statements, declarations or representations so relied upon in good faith by the insurer.
56-2408. Applications as evidence.-As to kinds of insurance other than life insurance, no application for insurance signed by or on behalf of the insured shall be admissible in evidence in any action between the insured and the insurer arising out of the policy so applied for, if the insurer has failed, at expiration of thirty (30) days after receipt by the insurer of written demand therefor by or on behalf of the insured, to furnish to the insured a copy of such application reproduced by any legible means.
56-2409. Representations in applications.-.All state-

381

INs URANCE CoNTRACT IN GENERAL

56-2410

ments and descriptions in any application for an insurance policy or annuity contract, or in negotiations therefor, by or in behalf of the insured or annuitant shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless:
(1) Fraudulent; or
(2) Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or
(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract in as large an amount, or at the premium rate as applied for, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been known to the insurer as required either by the application for the policy or contract or otherwise.
56-2410. Filing and approval of forms.-(1) No basic insurance policy or annuity contract form, or application form where written application is required and is to be made a part of the policy or contract, or printed rider or endorsement form or form of renewal certificate, shall be delivered or issued for delivery in this State, unless the form has been filed with and approved by the Commissioner. This provision shall not apply to surety bonds, or to specially rated inland marine risks, nor to policies, riders, endorsements, or forms of unique character designed for and used with relation to insurance upon a particular subject, or which relate to the manner of distribution of benefits or to the reservation of rights and benefits under life or accident and sickness insurance policies and are used at the request of the individual policyholder, contract holder, or certificate holder.
(2) Every such filing shall be made not less than thirty (30) days in advance of any such delivery. At the expiration of such thirty (30) days the form so filed shall be

56-2411

INS URANCE CoNTRACT IN GENERAL

382

deemed approved unless prior thereto it has been approved or disapproved by the Commissioner. Approval of any such form by the Commissioner shall constitute a waiver of any unexpired portion of such waiting period. The Commissioner may extend by not more than an additional thirty (30) days the period within which he may so approve or disapprove any such form, by giving notice of such extension before expiration of the initial thirty (30) day period. At the expiration of any such period as so extended, and in the absence of such prior approval or disapproval, any such form shall be deemed approved. The Commissioner may at any time, after notice and for cause shown, withdraw any such approval after notice and hearing as provided in sections 56-218 through 56227.
(3) Any order of the Commissioner disapproving any such form or withdrawing a previous approval shall state in reasonable detail the grounds therefor.
(4) The Commissioner may by order, in exceptional cases, exempt from the requirements of this section for so long as he deems proper any insurance document or form or type thereof as specified in such order, to which, in his discretion, this section may not practicably be applied, or the filing and approval of which are, in his discretion not desirable or necessary for the protection of the public.
(5) This section shall apply also to any such form used by domestic insurers for delivery in a jurisdiction outside this State, if the insurance supervisory official of such jurisdiction informs the Commissioner that such form is not subject to approval or disapproval by such official, and upon the Commissioner's order requiring the form to be submitted to him for the purpose. The applicable standards shall apply to such forms as apply to forms for domestic use.
56-2411. Grounds for disapproval of forms.-The Commissioner shall disapprove any such form filed under section 56-2410, or withdraw any previous approval thereof only:

383

IN sURANCE CoNTRACT I N GENERA L

56-241 2

(1) If it is in any respect in violation of or does not comply with this Title;
(2) If it contains or incorporates by reference any inconsistent, ambiguous, or misleading clauses, or exceptions and conditions which deceptively affect the risk purported to be assumed in the general coverage Of the contract;
(3) If it has any title, heading, or other indication of its provisions which is misleading;
(4) If it is printed or otherwise reproduced in such manner as to render any provision of the form substantially illegible or not easily legible to persons of normal vision; or
(5) If it contains provisions which are unfair or inequitable or contrary to the public policy of this State, or would, because such provisions are unclear or deceptively worded, encourage misrepresentation.
.56-2412. Waiver of standard or uniform provisions.(!) Th.e Commissioner may waive the required use of a particular provision in a particular insurance policy form or annuity or endowment contract form if he finds such provision unnecessary for the protection of the insured or inconsistent with the purposes of the policy, and the policy is otherwise approved by him.
(2) Unless otherwise provided in this Title, no policy shall contain any provision inconsistent with or contradictory to any .standard provision used or required to be used, but th.e Commissioner may approve any substitute provision which is not less favorable in any particular to the insured or beneficiary than the standard provisions or optional standar~ provisions otherwise required.
(3) In lieu of the standard provisions required by the provisions of this Title for contracts for particular kinds of insurance, substantially similar standard provisions

56-2413 INs u RA NCE CoNTRACT IN GENERAL

384

required by the law of the domicile of a foreign or alien insurer may be used when approved by the Commissioner.
56-2413. Contents of policies in general.-(!) The written instrument in which a contract of insurance is set forth is the policy.
(2) Every policy shall specify:
(a) The names of the parties to the contract;
(b) The subject of the insurance;
(c) The risks insured against;
(d) The time when the insurance thereunder takes effect and the period during which the insurance is to continue;
(e) The premium; and
(f) The conditions pertaining to the insurance.
(3) If under the policy the exact amount of premium is determinable only at stated intervals or termination of the contract, a statement of the basis and rates upon which the premium is to be determined and pair shall be included.
(4) Subsections (2) and (3) of this section shall not apply as to surety contracts, or to group insurance policies.
(5) All policies and annuity contracts issued by domestim insurers, and the forms thereof filed with the Commissioner, shall have printed thereon an appropriate designating letter or figure, or combination of letters or figures or terms identifying the respective forms of policies or contracts. Whenever any change is made in any such form, the designating letters, figures or terms thereon shall be correspondingly changed.
( 6) All policies an~ annuity contracts shall contain

385

INSURANCE CoNTRACT IN GENERAL

56-2416

such standard or uniform provisions as are required by the applicable provisions of this Title pertaining to contracts of particular kinds of insurance.
56-2414. Additional contents of policies.-A policy may contain additional provisions not inconsistent with this Title and which are:
(1) Required to be inserted by the laws of the insurer's domicile;
(2) Necessary, on account of the manner in which the insurer is constituted or operated, in order to state the rights and obligations of the parties to the contract; or

(3) Desired by the insurer and neither prohibited by law nor in conflict with any provisions required to be included therein.
56-2415. Charter or bylaw prov1s1ons; incorporation into policy.-No policy shall contain any provisions purporting to make any portion of the charter, bylaws or other constituent document of the insurer a part of the contract unless such portion is set forth in full in the policy. Any policy provision in violation of this section shall be invalid. This section shall not apply to the subscriber's agreement or power of attorney of a reciprocal , insurer.
56-2416. Execution of policies.-Every insurance policy shall be executed in the name of and on behalf of the insurer by its officer, attorney-in-fact, employee, or representative duly authorized by the insurer. A facsimile signqture of any such executing individual may be used in lieu of an original signature.
No insurance contract heretofore or hereafter issued and which is otherwise valid shall be rendered invalid by reason of the apparent execution thereof on behalf of the insurer by the imprinted facsimile signature of an individual not authorized so to execute as of the date of the

56-2417

INSURANCE CoNTRACT IN GENERAL

386

policy, if the policy is countersigned with the original signature of an individual then so authorized.
56-2417. Underwriters' and combination policies.(1) Two or more authorized insurers may jointly issue, and shall be jointly and severally liable on, an underwriters' policy bearing their names. Any one insurer may issue policies in the name of an underwriter's department and such policy shall plainly show the true name of the insurer.
(2) Two or more insurers may issue a combination policy which shall contain provisions substantially as follows:
(a) That the insurers executing the policy shall be severally liable for the full amount of any loss or damage, according to the terms of the policy, or for specified percentages or amounts thereof, aggregating the full amount of insurance under the policy; and
(b) That service of process, or of any notice or proof of loss required by such policy, upon any of the insurers executing the policy, shall constitute service upon all such insurers.
(3) Notwithstanding the provisions of section 56-320 where an authorized insurer issues a single policy of insurance together with one or more other insurers, a licensed resident agent of such insurer may countersign such policy on behalf of all insurers appearing thereon.
(4) This section shall not apply to co-surety obligations.
56-2418. Validity of noncomplying forms.-Any insurance policy, rider, or endorsement hereafter issued and otherwise valid which contains any condition or provision not in compliance with the requirements of this Title, shall not be thereby rendered invalid but shall be construed and applied in accordance with such conditions

387

INS URANCE CoNTRACT IN GENERAL

56-2420

and provisions as would have applied had such policy, rider, or endorsement been in full compliance with this Title.
Any insurance contract delivered or issued for delivery in this State covering a subject or subjects of insurance resident, located or to be performed in this State and which, pursuant to the provisions of this Title, the insurer may not lawfully insure under such a contract, shall be cancellable at any time by the insurer, any provisions of the contract to the contrary notwithstanding; and the insurer shall promptly cancel the contract in accordance with the Commissioner's request therefor. No such illegality or cancellation shall be deemed to relieve the insurer of any liability incurred by it under the contract while in force, or to prohibit the insurer from retaining the pro rata earned premium thereon. This provision does not relieve the insurer from any penalty otherwise incurred by the insurer under this Title on account of any such violation.
56-2419. Construction of policies.-Every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended, or modified by any rider, endorsement, or application made a part of the policy.
56-2420. Binders.-(1) Binders or other contracts for temporary insurance may be made orally or in writing, and shall be deemed to include all the usual terms of the policy as to which the binder was given together with such applicable endorsements as are designated in the binder, except as superseded by the clear and express terms of the binder.
(2) No binder shall be valid beyond the issuance of the policy with respect to which it was given, or beyond nine~ ty (90) days from its effective date, whichever period is the shorter, provided this shall not apply to excess or surplus line insurance.
(3) If the policy has not been issued a binder may be

56 2421

I NsURAN CE C o N TRACT IN GENERAL

388

extended or renewed beyond such ninety (90) days with the written approval of the Commissioner, or in accordance with such rules and regulations relative thereto as the Commissioner may promulgate.
(4) This section shall not apply to life or accident and sickness insurance.
56-2421. Delivery of policy.-(1) Subject to the insurer's requirement as to payment of premium, every policy shall be mailed or delivered to the insured or to the person entitled thereto within a reasonable period of time after its issuance, except where a condition required by the insurer has not been met by the insured.
(2) In event the original policy is delivered or is required to be delivered to or for deposit with any vendor, mortgagee, or pledgee of any motor vehicle or aircraft, and in which policy any interest of the vendee, mortgagor, or pledgor in or with reference to such vehicle or aircraft is insured, a duplicate of such policy setting forth the name and address of the insurer, insurance classification of vehicle or aircraft, type of coverage, limits of liability, premiums for the respective coverages, and duration of the policy or memorandum thereof containing the same such information, shall be delivered by the vendor, mortgagee, or pledgee to each such vendee, mortgagor, or pledgor named in the policy or coming within the group of persons designated in the policy to be so included. If the policy does not provide coverage of legal liability for injury to persons or damage to the property of third parties, a statement of such fact shall be printed, written, or stamped conspicuously on the face of such duplicate policy or memorandum.
56-2422. Renewal by certificate or endorsements.Any insurance policy terminating by its terms at a specified expiration date and not otherwise renewable, may be renewed or extended at the option of the insurer and upon a. currently authorized policy form and at the premium rate then required therefor for a specific additional pe-

389

IN sU RANCE CoNTRACT IN GENERAL

56-2425

riod or periods by certificate or by endorsement of the policy, and without requiring the issuance of a new policy.
56-2423. Assignment of policies.-A policy may be assignable or not assignable, as provided by its terms. Subject to its terms relating to assignability, any life or accident and sickness policy, whether heretofore or hereafter issued, under the terms of which the beneficiary may be changed upon the sole request of the policy owner, may be assigned either by pledge or transfer of title, by an assignment executed by the policy owner alone and delivered to the insurer, whether or not the pledgee or assignee is the insurer. Any such assignment shall entitle the insurer to deal with the assignee as the owner or pledgee of the policy in accordance with the terms of the assignment, until the insurer has received at its home office written notice of termination of the assignment or pledge, or written notice by or on behalf of some other person claiming some interest in the policy in conflict with the assignment.
56-2424. Payment discharges insurer.-Whenever the proceeds of or payments under a life or accident and sickness insurance policy or annuity contract heretofore or hereafter issued become payable in accordance with the terms of such policy or contract, or the exercise of any right or privilege thereunder, and the insurer makes payment thereof in accordance with the terms of the policy or contract or in accordance with any written assignment thereof, the person then designated in the policy or contract or by such assignment as being entitled thereto, if legally competent, shall be entitled to receive such proceeds or payments and to give full acquittance therefor, and such payments shall fully discharge the insurer from all claims under the policy or contract unless, before payment is made, the insurer has received at its home office written notice by or on behalf of some other person that such other person claims to be entitled to such payment or some interest in the policy or contract.
56-2425. Minor may give acquittance.-Any minor not

56-2426

INSURANCE CoNTRACT IN GENERAL

390

less than eighteen (18) years of age as determined at nearest birthday shall be deemed competent to receive and to give full acquittance and discharge for a payment or payments in aggregate amount not exceeding three thousand ($3,000) dollars in any one year made by any one insurer under the maturity, death or settlement provisions, in effect or e}ecte.d by such minor under a life insurance policy or annuity contract, provided such poli:cy, contract or agreement shall provide for the payment or payments to such minor.
No such minor shall be deemed competent to alienate the right to or to anticipate such payments. If a guardian of the property of any such minor is duly appointed and written notice thereof is given to the insurer at its home office, any such payment thereafter falling due shall be paid to the guardian for the account of the minor, unless the policy or contract under which the payment is made expressly provides otherwise. This section shall not be deemed to restrict the rights of minors set forth in section 56-2406 (2).
56-2426. Simultaneous deaths.-Where the individual insured or the annuitant and the beneficiary designated in a life insurance policy or policy insuring against accidental death or in an annuity contract have died and there is not sufficient evidence that they have died otherwise than simultaneously, the proceeds of the policy or contract shall be distributed as if the insured or annuitant had survived the beneficiary, unless otherwise specifically provided in the policy or contract. Payment made in accordance with the provision of this section shall fully discharge the insurer from all claims under the policy or contract unless before payment is made, the insurer has received at its home office written notice by or on behalf of some other person that such person claims to be entitled to such payment or some interest in the policy or contract.
56-2427. Forms for proof of loss to be furnished.-An insurer shall furnish, _upon written request of any person

391

INsURANCE CoNTRACT IN GENERAL

56-2430

claiming to have a loss under an insurance contract issued by such insurer, forms for proof of loss for completion by such person; but such insurer shall not, by reason of the requirement so to furnish forms, have any responsibility for or with reference to the completion of such proof or the manner of any such completion or attempted coip.pletion. Failure or refusal to furnish such form upon written request or written notice of a loss shall constitute waiver of the right of the insurer to require proof of loss.
56-2428. Claims administration not waiver.-Without limitation of any right or defense of an insurer otherwise, none of the following acts by or on behalf of an insurer shall be deemed to constitute a waiver of any provision of a policy or of any defense of the insurer thereunder:
(1) Acknowledgement of the receipt of notice of loss or claim under the policy.
(2) Furnishing forms for reporting a loss or claim, for giving information relative thereto, or for making proof of loss, or receiving or acknowledging receipt of any such forms or proofs completed or uncompleted.
(3) Investigating any loss or claim under any policy or engaging in negotiations looking toward a possible settlement of any such loss or claim.

56-2429. Time policy or contract effective; how calculated.-A policy of insurance or an annuity or endowment contract shall run from midday of the date of the policy or contract, and the time shall be calculated accordingly, if the policy or contract is to be in force for a specified period of time unless the hour and minute of attachment of liability is specified.
56-2430. Cancellation. - Cancellation of a policy, which by its terms and conditions, may be cancelled by the insurer shall be accomplished as prescribed herein: Written notice, stating the time when the cancellation will be effective, but not less than five days from date of

56-2430.1

INsuRANCE CoNTRACT IN G E NERAL

392

notice, or such other specific longer period as may be provided in the contract or by statute; may be delivered in person, or by depositing such notice in the United States mails to be dispatched by at least first class mail to the last address of record of the insured and receiving therefor the receipt provided by the United State Post Office Department. Such notice may or may not be accompanied by a tender of the unearned premium paid by the insured calculated on a pro rata basis. If such tender is not made simultaneously with such notice, it shall be made within 15 days of notice of cancellation, unless an audit or rate investigation is required, in which case such tender shall be made as soon as practicable. Notices of cancellation of policies protecting the interest of the insured and any lienholder shall be delivered or mailed to the last addresses of record as provided herein to the insured and to the lienholders shown in the policy and shall specify when, not less than 10 days or such longer period as may be provided in the contract or by the statute, the cancellation shall become effective.

56-2430.1. Same; reasons for cancellation; procedure. -This section shall apply only to those portions of an automobile policy which relate to bodily injury and property damage liability, medical payments, physical damage and uninsured motorists coverage.
As used in this section: "Renewal" means issuance and delivery by an insurer of a policy superseding at the end of the policy perk.:rl a policy previously issued and delivered by the same insurer, and providing no less than the coverage contained in the superseded policy; or issuance and delivery of a certificate or notice extending the term of a policy beyond its policy period or term: Provided, however, that any policy with a policy period or term of less than six months shall, for the purpose of this section, be considered to have successive policy periods ending each six months following its original date of issue and, regardless of its wording, any interim termination by its terms or by refusal to accept premium shall be a cancellation subject to this section.

393

INsURANCE CoNTRACT IN GENERAL

56-2430.1

"Policy" means a policy insuring a natural person as named insured, or one or more related individuals resident of the same household and which provides bodily injury and property damage liability coverage, physical damage, medical payments and uninsured motorists protection coverages or any combination thereof, and under which the insured vehicles therein designated are of the following types only:
(i) A motor vehicle of the private passenger, station wagon or jeep type that is used as a public or livery conveyance for passengers, not rented to others, or
(ii) Any other four-wheel motor vehicle with a load capacity of 1500 pounds or less which is not used in the occupation or professional business of the insured: Provided, however, that this section shall not apply: (1) to policies of automobile liability insurance issued under an automobile assigned risk plan, nor (2) to any policy insuring an automobile which is one of more than four insured under a single policy, nor (3) to any policy covering garage, automobile sales agency, repair shop, service station or public parking place operation hazards.
(A) No notice of cancellation of a policy issued for delivery in this State shall be mailed or delivered by an insurer except for one or more of the following reasons:
1. the named insured failed to discharge when due any of his obligations in connection with the payment of premiums on such policy or any installment thereof, or the renewal thereof, whether payable directly to the insurer or indirectly under any premium finance plan or extension of credit; or
2. the issuance was obtained through a material misrepresentation; or
3. any insured violated any of the terms and conditions of the policy; or
4. the named insured failed to disclose fully, if called for in the application, his record for the preceding 36 months of motor vehicle accidents and moving traffic violations; or
5. the named insured failed to disclose in his written application or in response to inquiry by his broker or by the insurer or its agent information necessary for the

56-2430.1

INSURANCE CoNTRACT IN GENERAL

394

acceptance or proper rating of the risk; or 6. insured made a false or fraudulent claim or knowl-
ingly aided or abetted another in the presentation of such a claim; or
7. the named insured or any other operator, either resident in the same household or who customarily operates an automobile insured under such policy:
(a) has, within the 36 months prior to the notice of cancellation, had his driver's license under suspension or revocation; or
(b) is or becomes subject to epilepsy or heart attacks, and such individual does not produce a certificate from a physician testifying to his unqualified ability to operate a motor vehicle; or
(c) has an accident record, conviction record (criminal or traffic), physical, mental, or other condition which is such that his operation of an automobile might endanger the public safety; or
(d) has within a three-year period prior to the notice of cancellation been addicted to the use of narcotics or other drugs; or
(e) has been convicted, or forfeited bail, during the 36 months immediately preceding the notice of cancellation, for:
(1) any felony; or (2) criminal negligence resulting in death, homicide, or assault arising out of the operation of a motor vehicle; or (3) operating a motor vehicle while in an intoxicated condition or while under the influence of drugs; or (4) being intoxicated while in, or about an automobile, or while having custody of an automobile; or (5) leaving the scene of an accident without stopping to report; or (6) theft or unlawful taking of a motor vehicle; or (7) making false statements in an application for a driver's license; or (f) has been convicted of, or forfeited bail for, three or more violations within the 36 months immediately preceding the notice of cancellation of any law, ordinance, or regulation limiting the speed of motor vehicles, or any

:) 95

INsU RANCE CoNTRACT IN G EN ERAL

56-2430.1

of the provisions of the motor vehicle laws of any State, violation of which constitutes a misdemeanor, whether or not the violations were r epetitions of the same offense or different offenses; or
(g) the insured automobile is: ( 1) so mechanically defective that its operation might endanger public safety; or (2) used in carrying passengers for hire or compensation: Provided, however, that the use of an automobile for a car pool shall not be considered use of an automobile for hire or compensation; or (3) used in the transportation of flammabl es or explosives; or (4) an authorized emergency vehicle; or (5) changed in shape or condition during the policy period so as to substantially increase the risk. (B) No notice of cancellation of a policy to which this section applies shall be effective unless mailed or delivered by the insurer to the named insured at least 20 days prior to the effective date of cancellation: Provid ed, however, that where cancellation is for failure of the named insured to discharge when due any of his obligations in connection with the payment of premiums for the policy, or any installment thereof, whether payable directly to the insurer or indirectly under any premium finance plan or extension of credit, at least 10 days' notice of cancellation accompanied by the reason shall be given. Unless the reason or reasons for the cancellation of the policy accompany or are included in the notice of cancellation, the notice of cancellation shall state or be accompanied by a statement that upon written request of the named insured, mailed or delivered not less than 15 days prior to the effective date of cancellation, the insurer will specify the reason or reasons for such cancellations. The reason or reasons shall be mailed or delivered to the named insured within five days after receipt of such request. (C) No insurer shall fail to renew a policy unless it shall mail or deliver to the named insured, at the address shown in the policy, at least 20 days' advance notice of its intention not to r enew. This subsection shall not apply

56-2430.2

INsuRANCE C o NTRACT IN G E N ERAL

396

if the insurer has manifested its willingness to renew by delivering a renewal policy, renewal certificate or other evidence of renewal to the named insured or his representative or by offering to issue a renewal policy, certificate or other evidence of renewal, or has manifested such intention by any other means; nor renewal or continuation of a policy shall not constitute a waiver or estoppel with respect to ground for cancellation which existed before the effective date of such r enewal or continuance.
(D) Mailing of notice of cancellation, or of intention not to renew or not to continue the policy, or mailing of reasons for cancellation, to the named insured at the address shown in the policy, shall be sufficient proof of notice.
(E) When a policy is canceled, other than for nonpayment of premium, or in the event of a failure to renew or continue a policy, the insurer shall notify the named insured of his possible eligibility for insurance through the Georgia Automobile Assigned Risk Plan. Such notice shall accompany or be included in the notice of cancellation or the notice of intent not to renew, or not to continue the policy, and shall state that such notice of availability of the Georgia Automobile Assigned Risk Plan is given pursuant to this Code section.
(F) There shall be no liability on the part of and no cause of action of any nature shall arise against any insurer, its authorized representative, its agents, its employees, or any firm, person or corporation furnishing to the insurer information as to reasons for cancellation or nonrenewal, for any statement made by any of them in any written notice of cancellation, for the providing of information pertaining thereto.
(G) This section shall not apply to any policy which has been in effect less than 60 days at the times notice of cancellation is mailed or d eliver ed by th e insurer unless it is a renewal of a policy.
56-2430.2. Cancellation where interests of lienholders affected.-No policy of insurance in which the interest of any lienholder named in the policy are protected by a loss payable clause may be cancel ed by the insurer so as to destroy the protection afforded by said policy for

397

INsuRANCE CoNTRACT IN GENERAL

56-2434

the interests possessed by the lienholders unless a copy of the notice of cancellation as provided for by section 56-2430 shall be sent to the lienholder in accordance with the provisions of section 56-2430.
56-2431. Governmental units empowered to make de-
ductions and enter into agreements.-Each and every county, county board of public instruction, city, town, governmental unit, department, board, or bureau of the State of Georgia, or of the cities and towns thereof, is hereby authorized and empowered to make deductions periodically from the wages or salaries of its employees with which to pay the premium for life, sickness, accident, hospitalization, or annuity insurance, or all or any kind Of insurance, for the benefit of such employees, upon a group insurance plan, and to that end to enter into agreements with insurance companies whereby the kind of group insurance desired by the employees may be furnished to them, and the premiums therefor remitted periodically by said counties, boards, cities, towns, bureaus or departments thereof.
56-2432. Participation by employees to be voluntary.
-Participation in such group insurance by such employees shall be entirely voluntary on the part of each employee at all times. Any employee, upon any pay day, may withdraw or retire from such group plan upon giving his employer written notice thereof and directing the discontinuance of deductions from his wages or salary in payment of such plan.
56-2433. Insurance not to affect rights under Work-
men's Compensation Act.-The insurance permitted under sections 56-2431 and 56-2432 shall be in addition to and in no manner in lieu of the provisions of the Georgia Workmen's Compensation Act.
56-2434. Local and special laws unaffected.-Nothing in sections 56-2431 and 56-2432 is intended to restrict or repeal the operation of any special or local law heretofore enacted authorizing the participation in group insurance by employees of the State, counties, cities, or towns thereof.

56-2435

INs U RANCE CoNTRACT IN GENERAL

398

56-2435. Authorizing corporate surety in lieu of personal surety.-Any surety insurance company or such other corporation or company that may do a surety insurance business, incorporated and organized under the laws of this State, or of any other state or a foreign country, for the purpose of transacting business of surety insurance, which has complied with all requirements of law for license to transact business in this State, may, upon proper proof thereof and upon production of evidence of solvency and credit, satisfactory to the judge, head of the department, or other officer or officers authorized to approve and accept bonds, be accepted as surety upon the bond of any person, company or corporation required by law to execute bonds, in lieu of any surety or sureties now required by law. Any such surety insurance company, or other company doing a surety insurance business, may be released from its liability on such bond on the same terms a.nd conditions as are prescribed by law for the release of individuals; it being the true intent and meaning of the provisions of this section to enable the companies and corporations doing a surety insurance business to become sureties on all bonds required by law to be taken, with all the rights and subject to all the liabilities of individual sureties.
56-2436. Deposit and withdrawal of funds covered by bond.-It shall be lawful for any party of whom a bond, undertaking or other obligation is required, to agree with his surety or sureties for the deposit of any or all monies and assets for which he and his surety or sureties are or may be held responsible, with a bank, savings bank, safedeposit or trust company, authorized by law to do business as such, or with other depository approved by the court or a judge thereof, if such deposit is otherwise proper, for the safekeeping thereof, and in such manner as to prevent the withdrawal of such monies or assets or any part thereof, without the written consent of such surety or sureties, or an order of court, or a judge thereof made on such notice to such surety or sureties as such court or judge may direct; Provided, however, that such agreement shall not in any manner release from or change the

399

IN sURANCE CoN TRA CT I N G ENERAL

56-2437

liability of the principal or sureties as established by the terms of the said bond.

56-2437. Governmental motor vehicles; insurance to
cover injuries by.-(1) A municipal corporation, a county or any other political subdivision of this State is authorized in its discretion to secure and provide insurance to cover liability for damages on account of bodily injury or death resulting therefrom to any person, or for damage to property of any person, or both, arising by reason of ownership, maintenance, operation, or use of any motor vehicle by the municipal corporation, county, or any other political subdivision of this State, under its management, control or supervision, whether in a governmental undertaking or not, and to pay premiums therefor.

(2) Whenever a municipal corporation, a county, or

any other political subdivision of this State shall purchase

such insurance the negligence of any duly authorized offi-

cer, agent, servant, attorney, or employee in the perform-

ance of his official duties, its governmental immunity

shall be waived to the extent of the amount of insurance

so purchased. Neither the municipal corporation, county

or political subdivision of this State, as the case may be,

nor the insuring company shall plead such governmental

immunity as a defense and may make only such defenses

as could be made if the insured were a private person. The

municipal corporation, county or any other political sub-

division of this State shall be liable for negligence as

herein provided only for damages suffered while said in-

I

surance is in force, but in no case in an amount exceeding

the limits or the coverage of any such insurance policy.

No attempt shall be made in the trial of any action

brought against a municipal corporation, county or any

other political subdivision of this State to suggest the

existence of any insurance which cov.ers in whole or in

part any judgment or award which may be rendered in

favor of the plaintiff, and if the verdict rendered by the

jury exceeds the limits of the applicable insurance, the

court shall reduce the amount of said judgment or award

to a sum equal to the applicable limits stated in the insur-

ance policy.

56-2438' INSURANCE CoNTRACT IN G E NERAL

400

(3) Premiums on the insurance authorized by subsec~ tion (1) above shall be paid from the general funds of the municipal corporation, county or political subdivision.
56-2438. Guaranteed arrest bond certificates.-(!) Any domestic or foreign insurance company, fidelity insurance company, or surety company which has qualified to transact such business within this State may contract to become surety, in an amount not to exceed two hundred ($200.00) dollars each, for any guaranteed arrest bond certificates issuf'd by an automobile club or association, by filing with the Commissioner a certificate thus to become surety.
(2) Such certificate shall be in a form which shall be prescribed by the Commissioner and shall state the following:
(a) The name and address of the automobile club or dubs or automobile association or associations issuing the guaranteed arrest bond certificates of which the said company undertakes to be surety.
(b) The unqualified obligations of the company undertaking to become surety to pay the fine or forfeiture in an amount not to exceed two hundred ($200.00) dollars of any person who fails to make an appearance to answer to the charges for- which said guaranteed arrest bond certificate is posted.
(3) Any guaranteed arrest bond certificate to which an insurance, fidelity insurance or surety company has become surety, as herein provided, shall when posted by the person whose signature appears thereon, be accepted in lieu of cash bail or other bond in an amount not to exceed two hundred ($200.00) dollars, as a bail bond, to guarantee the appearance of such person in any court in this State, including all municipal courts in this State, at such time as may be required by the court, when the person is arrested for violation of any motor vehicle law of this State or any motor vehicle ordinance of any municipality in this State; except for the offense of driving

101

LIFE INS URANCE

56-2439

under the influence of intoxicating liquors or drugs, or for any felony. Any such guaranteed arrest bond certificates so posted as bail bond in any court in this State shall be subject to the forfeiture and enforcement provisions with respect to bail bonds in criminal cases as provided by law or as may hereafter be provided by law. Any such guaranteed arrest bond certificate posted as a bail bond in any municipal court of this State shall be subject to the forfeiture and enforcement provisions of the charter or ordinance of the particular municipality pertaining to bail bonds.
56-2439. Exclusionary clause; aircraft insurance.-No policy of insurance issued or delivered in this State covering any loss, expense or liability arising out of the ownership, maintenance or use of an aircraft shall exclude or deny coverage because the aircraft is operated in violation of civil air regulations pursuant to Federal, State or local laws or ordinances.
This section does not prohibit the use of specific exclusions or conditions in any such policy which relates to any of the following:
(a) Certification of an aircraft in a stated category by the Federal Aviation Administration.
(b) Certification of a pilot in a stated category by the Federal Aviation Administration.
(c) Establishing r equirements for pilot experience. (d) Establishing limitations on the use of the aircraft. (Acts 1968, p. 1414.)

CHAPTER 56-25

LIFE INSURANCE.

56-2501. 56-2502. 56-2503.
56-2504. 56-2505.

Contract of life insurance defined. Policies to contain the entire contract. Life insurance policies; standard provisions required. Nonforfeiture provision; life. Exemption of life insurance proceeds from creditors.

56-2501

LIFE INSURANCE

402

56-2506. 56-2507. 56-2508. 56-2509. 56-2510.

Killer of insured not to receive policy benefits. Life insurance policies; prohibited provisions. Policy plans prohibited. Scope of incontestable clause. Incontestability after reinstatement.

56-2501. Contract of life insurance defined.-A contract of life insurance is one whereby the insurer, for a consideration, assumes an obligation to be performed upon the death of the insured, or upon the death of another in the continuance of whose life the insured has an insurable interest, whether such obligation be one to pay a sum of money, or to perform services, or to furnish goods, wares or merchandise or other things of value, and whether the cost or value of the undertaking on the part of the insurer be more or less than the consideration flowing to him.

56-2502. Policies to contain the entire contract.-Except for group life insurance policies and industrial life insurance policies, all life insurance policies which contain any reference to the application for insurance, or to the constitution, bylaws, or other rules of the insurer as forming part of or as affecting the contract between the parties shall include or have attached to said policy a correct copy of the application signed by the applicant and of the constitution, bylaws, and rules referred to. Unless included in or attached to the policy, no such application, constitution, bylaws or rules shall be considered a part of the contract or as an independent contract, nor shall it be received in evidence either as part of or as affecting the contract or as an independent contract in any controversy between the parties to or interested in the policy. This section shall not apply to applications for reinstatement.

56-2503. Life insurance policies; standard provisions required.-(1) No policy of life insurance, except as stated in subsection (2), shall be delivered or issued for delivery in this State unless it contains in substance the following provisions:

(a) Grace period. A provision that the insured is en-

40 3

LIFE INSURANCE

56-2503

titled to a grace period of not less than thirty (30) days within which the payment of any premium after the first may be made, during which period of grace the policy shall continue in force, but if a claim arises under the policy during such period of grace, the amount of any premium due or overdue may be deducted from any amount payable under the policy in settlement;
(b) Incontestability. A provision that the policy (exclusive of provisions relating to disability benefits or to additional benefits in the event of death by accident or accidental means) shall be incontestable, except for nonpayment of premiums, after it has been in force during the life time of the insured for a period of two years from its date of issue;
(c) Misstatement of age. A provision that if the age of the person insured or of any other person whose age is considered in determining the premium or benefit has been misstated, any amount payable or benefit accruing under the policy shall be such as the premium would have purchased at the correct age or ages;
(d) Dividends. A provision in participating policies that, beginning not later than the end of the third policy year, the insurer shall annually ascertain and apportion the divisible surplus, if any, that will accrue on the policy anniversary or other dividend date specified in the policy. Except as hereinafter provided, any dividend becoming payable shall at the option of the party entitled to elect such option be either (i) payable in cash or (ii) applied to any one of such other dividend options as may be provided by the policy. If any such other dividend options are provided, the policy shall further state which option shall be automatically effective if such party shall not have elected some other option. If a policy specifies a period within which such other option may be elected, such period shall be not less than thirty (30) days following the date on which such dividend is due and payable. The annually apportioned dividend shall be deemed to be payable in cash within the meaning of (i) above even though the policy provides that payment of such dividend is to be deferred for a specified period, provided such

56-2503

LIFE INSURANCE

404

period does not exceed six years from the date of apportionment and that interest will be added to such dividend at a specified rate. If a participating policy provides that the benefit under any paid-up nonforfeiture provision is to be participating, it may provide that any divisible surplus becoming payable or apportioned while the insurance is in force under such nonforfeiture provision shall be applied in the manner set forth in the policy;
(e) Policy loan. A provision that after three full years' premiums have been paid and after the policy has a cash surrender value and while no premium is in default beyond the grace period for payment, the insurer will loan on the execution of a proper note or loan agreement by the owner of the policy, and on proper assignment of the policy and on the sole security thereof, at a specified rate of interest, a sum equal to or, at the option of the owner of the policy, less than the cash value of the policy at the end of the current policy year and of any dividend additions thereto; and that the company may deduct from such loan value or from the proceeds of the loan any existing indebtedness on or secured by the policy not already deducted in determining such cash value including interest due or accrued, and any unpaid balance of the pre~ mium for the current policy year, and may collect interest in advance of the loan to the end of the current policy year; Provided, that the policy shall reserve to the insurer the right to defer the granting of a loan, other than for the payment of any premium to the insurer, for six months after the application therefor. The policy may also provide that if interest on any indebtedness is not paid when due it shall then be added to the existing indebtedness and shall bear interest at the same rate, and that if and when the total indebtedness on the policy, including interest due on accrued, equals or exceeds the amount of the loan value thereof, then the policy shall terminate and become void, but not until at least thirty (30) days' notice shall have been mailed by the insurer to the last known address of the insured or policy owner and of any assignee of record a_t the home office of the insurer. The policy, at the insurer's option, may provide for an automatic premium loan, subject to an election of the party

405

LIFE I NSURANCE

56-2503

- -- -- -- - - - - - - - - - - -- - - - - - - -- - - - - - - - - - - - - - - - - - - - - -

-
entitled to elect. No condition other than as herein pro-

vided shall be exacted as a prerequisite to any such loan.

This provision shall not apply to term insurance or to term

insurance benefits provided by rider or supplemental pol-

icy provisions ;

(f) Tables of installments. In case the policy provides that the proceeds may be payable in installments which are determinable at issue of the policy, there shall be a table showing the amounts of the guaranteed installments;

(g) Tables of options and values. A statement of the mortality table and interest rate used in calculating the cash surrender values and the paid-up nonforfeiture benefits available under the policy, together with a table showing the cash surrender value, if any, and paid-up nonforfeiture benefits, if any, available under the policy on each policy anniversary, either during the first twenty (20) policy years or during the term of the policy, whichever is shorter, such values and benefits to be calculated upon the assumption that there are no dividends or paid-up
additions credited to the policy and that there is no indebtedness to the insurer on the policy;

(h) Reinstatement. A provision that unless the policy has been surrendered for its cash surrender value or its cash surrender value has been exhausted, or unless the paid-up term insurance, if any, has expired, the policy will be reinstated at any time within three years from the date of premium default upon written application therefor, the production of evidence of insurability satisfactory to the insurer, the payment of all premiums in arrears, and the payment or reinstatement of any other indebtedness to the insurer upon the policy all with interest not exceeding six ( 6%- ) percent per annum compounded annually;

(i) Title. On each such policy there shall be placed a title which shall briefly and accurately describe the nature and form of the policy;

(j) Payment of premiums. A provision relative to the payment of premiums;

56-2504

LIFE IN SURANCE

406

(k) Payment of claims. A provision that when a policy shall become a claim by the death of the insured settlement shall be made upon receipt of due proof of death and, at the insurer's option surrender of the policy and/or proof of the interest of the claimant. If an insurer shall specify a particular period prior to the expiration of which settlement shall be made, such period shall not exceed two months from the receipt of such proofs;
(l) Entire contract. A provision that if any reference is made to the application for insurance or to the constitution, bylaws or rules of the insurer as forming part of or as affecting the policy between the parties there shall be included in or attached to said policy when issued a correct copy of the application signed by the applicant and of the constitution, bylaws and rules referred to.
(2) Any of the foregoing provisions or portions thereof not applicable to single premium or term policies shall to that extent not be incorporated therein. This section shall not apply to industrial (except as provided in section 56-2902 (6) ), credit or group insurance or to any provision of a life insurance policy, or contract supplemental thereto, relating to disability benefits or to additional benefits in event of death by accident or accidental means.
56-2504. Nonforfeiture provision; life.- (1) Required provisions. - In the case of policies issued on or after the operative date of this section as defined in subsection (7) no policy of life insurance, except as stated in subsection
(6), shall be delivered or issued for delivery in this State unless it shall contain in substance the following provisions, or corresponding provisions which in the opinion of the Commissioner are at least as favorable to the defaulting or surrendering policyholder:
{a) That, in the event of default in any premium payment, the insurer will grant, upon proper request not later than 60 days after the due date of the premium in default, a paid-up nonforfeiture benefit on a plan stipulated in the policy, effective as of such due date, of such

407

LIFE INSURANCE

56-2504

value as may be hereinafter specified;
(b) That, upon surrender of the policy within 60 days after the due date of any premium payment in default after premiums have been paid for at least three full years in the case of ordinary insurance or five full years in the case of industrial insurance, the insurer will pay, in lieu of any paid-up nonforfeiture benefit, a cash surrender value of such amount as may .be hereinafter specified;
(c) That a specified paid-up nonforfeiture benefit shall become effective as specified in the policy unless the person entitled to make such election elects another available option not later than 60 days after the due date of the premium in default;
(d) That, if the policy shall have become paid up by completion of all premium payments or if it is continued under any paid-up nonforfeiture benefit which became effective on or after the third policy anniversary in the case of ordinary insurance or the fifth policy anniversary in the case of industrial insurance, the insurer will pay, upon surrender of the policy within 30 days after any policy anniversary, a cash surrender value of such amount as may be hereinafter specified;
(e) An explanation of the manner in which the cash surrender values and the paid-up nonforfeiture benefits are altered by the existence of any paid-up additions, credited to the policy or any indebtedness to the insurer on the policy; if a detailed statement of the method of computation of the values and benefits shown in the policy is not stated therein, a statement that such method of computation has been filed with the insurance supervisory -official of the state in which the policy is delivered; and a statement of the method to be used in calculating the cash surrender value and paid-up nonforfeiture benefit available under the policy on any policy anniversary beyond the last anniversary for which such values and benefits are consecutively shown in the policy.
Any of the foregoing provisions or portions thereof not

56-2504

LIFE INS URANCE

408

applicable by reason of the plan of insurance may, to the extent inapplicable, be omitted from the policy.
The insurer shall reserve the right to defer the payment of any cash surrender value for a period of six months after demand therefor with surrender of the policy.
(2) Cash surrender value. Any cash surrender value available under the policy in the event of default in a premium payment due on any policy anniversary, whether or not required by subsection (1) of this section, shall be an amount not less than the excess, if any, of the present value, on such anniversary, of the future guaranteed benefits which would have been provided for by the policy including any existing paid-up additions, if there had been no default, over the sum of; (a) the then present value of the adjusted premiums as defined in subs~c tion (4) of this section, corresponding to premiums which would have fallen due on and after such anniversary; and (b) the amount of any indebtedness to the insurer on account of or~ecuredJ>y the policy. Any cash surrender value available within 30 days after any policy anniversary under any policy paid up by completion of all premium payments or any policy continued under any paidup nonforfeiture benefit, whether or not required by such subsection (1), shall be an amount not less than the present value, on such anniversary, of the future guaranteed benefits provided for by the policy including any existing paid-up additions, decreased by any indebtedness to the insurer on account of or secured by the policy.
(3) Paid-up nonforfeiture benefit. Any paid-up nonforfeiture benefit available under the policy in the event of default in a premium payment due on any policy anniversary shall be such that its present value as of such anniversary shall be at least equal to the cash surrender value then provided for by the policy or, if none is provided for, that cash surrender value which would have been required by this section in the absence of the condition that premiums shall have been paid for at least a specified period.

109

LIFE INSURANCE

56-2504

( 4) Adjusted premiums.-Except as provided in the third paragraph of this subsection (4), the adjusted premiums for any policy shall be calculated on an annual basis and shall be such uniform percentage of the respective premiums specified in the policy for each policy year, excluding extra premiums on a substandard policy, that the present value, at the date of issue of the policy~ of all such adjusted premiums shall be equal to the sum of: (a) the then present value of the future guaranteed benefits provided for by the policy; (b) two per cent. of the amount of the insurance if the insurance be uniform in amount, or of the equivalent uniform amount, as hereinafter defined, if the amount of insurance varies with the duration of the policy; (c) 40 per cent. of the adjusted premium for the first policy year; (d) 25 per cent. of either the adjusted premium for the first policy year or the adjusted premium for a whole life policy of the same uniform or equivalent uniform amount with uniform premiums for the whole of life issued at the same age for the same amount of insurance, whichever is less: Provided, however, that in applying the percentages specified subparts (c) and (d) above, no adjusted premium shall be deemed to exceed four per cent. of the amount of insurance or uniform amount equivalent thereto. The date of issue of a policy for the purpose of this section shall be the date as of which the rated age of the insured is determined.
In the case of a policy providing an amount of insurance varying with the duration of the policy, the equivalent uniform amount thereof for the purpose of this subsection shall be deemed to be the uniform amount of insurance provided by an otherwise similar policy, containing the same endowment benefit or benefits, if any, issued at the same age and for the same term, the amount of which does not vary with duration and the benefits under which have the same present value at the date of issue as the benefits under the policy: Provided, however, that in the case of a policy providing a varying amount of insurance issued on the life of a child under age 10, the equivalent uniform amount may be computed as though the amount

56-2504

LIFE INSURANCE

410

of insurance provided by the policy prior to the attainment of age 10 was the amount provided by such policy at age 10. In the case of a policy which provides pure endowment benefits which are payable without reducing the amount of insurance provided by the policy and which may be applied to provide additional amounts of paid-up life insurance, the equivalent uniform amount thereof shall be determined based on the amounts of insurance which would be effective if all such pure endowment benefits were applied to provide such additional amounts of paidup life insurance.
The adjusted premiums for any policy providing term insurance benefits by rider or supplemental policy provision shall be equal to (i) the adjusted premiums for an otherwise similar policy issued at the same age without such term insurance benefits, increased, during the period for which premiums for such term insurance benefits are payable, by (ii) the adjusted premiums for such term insurance, the foregoing items (i) and (ii) being calculated separately and as specified in the first two paragraphs of this subsection except that, for the purpose of (b), (c) and (d) of the first such paragraph, the amount of insurance or equivalent uniform amount of insurance used in the calculation of the adjusted premiums referred to in (ii) shall be equal to the excess of the corresponding amount determined for the entire policy over the amount used in the calculation of the adjusted premiums in (i).
All adjusted premiums and present values referred to in this section shall for all polices of ordinary insurance be calculated on the basis of the Commissioners 1958 Standard Ordinary Mortality Table, provided that for any category of ordinary insurance issued on female risks, adjusted premiums and present values may be calculated according to an age not more than three years younger than the actual age of the insured. Such calculations for all policies of industrial insurance shall be made on the basis of the 1941 Standard Industrial Mortality Table: Provided, however, that any insurer may file with the Commissioner a written notice of its election that such

411

LIFE INSURANCE

56-2504

adjusted premiums and present values shall be calculated on the basis of the Commissioners' 1961 Standard Industrial Mortality Table after a specified date before January 1, 1968, and, whether or not any election has been made, such calculations for all policies of industrial insurance issued on or after January 1, 1968 shall be made on the basis of the Commissioners' 1961 Standard Industrial Mortality Table. All calculations shall be made on the basis of the rate of interest not exceeding three and one-half per cent. per annum, specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits: Provided, however, that in calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed, in the case of ordinary policies, may not be more than those shown in the Commissioners' 1958 Extended Term Insurance Table, and, in the case of industrial policies, may not be more than 130 per cent. of the rates of mortality according to the 1941 Standard Industrial Mortality Table except that when the Commissioners' 1961 Standard Industrial Mortality Table becomes applicable as hereinbefore provided, such rates of mortality assumed may be not more than those shown in the Commissioners 1961 Industrial Extended Term Insurance Table: Provided, further, that for insurance issued on a substandard basis, the calculation of any such adjusted premiums and present values may be based on such other table of mortality as may be specified by the insurer and approved by the Commissioner.
(5) Calculation of values. Any cash surrender value and any paid-up nonforfeiture benefit available under the policy in the event of default in a premium payment due at any time other than on the policy anniversary shall be calculated with allowance for the lapse of time and the payment of fractional premiums beyond the last preceding policy anniversary, except in the case of industrial insurance proportionate increases in value may be calculated on the basis of quarter-year payment. All values referred to in subsections (2), (3), and (4) of this section

56-2504

LIFE INSURANCE

412

may be calculated upon the assumption that any death benefit is payable at the end of the policy year of death. The net value of any paid-up additions, other than paid-up term additions, shall be not less than the dividends or coupons used to provide such additions. Notwithstanding the provisions of subsection (2) of this section, additional benefits payable: (a) in the event of death or dismemberment by accident or accidental means (b) in the event of total and permanent disability; (c) as reversionary annuity or deferred reversionary annuity benefits: (d) as term insurance benefits provided by a rider or supplemental policy provision to which if issued as a separate policy, this section would not apply; (e) as term insurance on the life of a child or on the lives of children provided in a policy on the life of a parent of the child, if such term insurance expires before the child's age is 26, is uniform in amount after the child's age is one, and has not become paid up by reason of the death of a parent of the child; and (f) as other policy benefits additional to life insurance and endowment benefits, and premiums for all such additional benefits, shall be disregarded in ascertaining cash surrender values and nonforfeiture benefits required by this section, and no such additional benefits shall be required to be included in any paid-up nonforfeiture benefits.
(6) Exceptions. This section shall not apply to any reinsurance, group insurance, pure endowment, annuity or reversionary annuity contract, nor to any term policy of uniform amount, or renewal thereof, of 15 years or less expiring before age 66, for which uniform premiums are payable during the entire term of the policy, nor to any term policy of decreasing amount on which each adjusted premium, calculated as specified in subsection (4) of this section, is less than the adjusted premium so calculated on a term policy of uniform amount issued at the same age and for the same initial amount of insurance for a term which is 15 years for ages at issu e 50 and under and which decreases one year for each year of age at issue beyond 50.

413

LIFE INSURANCE

56-2506

(7) Effective date. After the effective date of this Title any insurer may file with the Commissioner a written notice of its election to comply with the provisions of this section after a specified date before January 1, 1966 with reference to specified policy forms. After the filing of such notice, then upon such specified date this section shall become operative with respect to such policies and contracts thereafter issued by such insurer. The operative date of this section on all other policies and contracts shall be January 1, 1966.
56-2505. Exemption of life insurance proceeds from creditors.-If a policy of life insurance, whether heretofore or hereafter issued, is effected by any person on his own life, or on another life, in favor of a person other than himself, or except, in cases of transfer with intent to defraud creditors, if a policy of life insurance is assigned or in any way made payable to any such person, the lawful beneficiary or assignee thereof, other than the insured or the person so effecting such insurance or executors or administrators of such insured or the person so effecting such insurance, shall be entitled to its proceeds and avails as against the creditors and representatives of the insured and of the person effecting the same, whether or not the right to change the beneficiary shall be reserved or permitted, and whether or not the policy shall be made payable to the person whose life is insured if the beneficiary or assignee shall predecease such person. Subject to the statute of limitations, the amount of any premiums for said insurance paid with intent to defraud creditors, with interest thereon, shall inure to the benefit of creditors from the proceeds of the policy; but the insurer shall be discharged of all liability thereon by payment of its proceeds in accordance with its terms, unless before such payment the insurer shall have received written notice, by or in behalf of a creditor, of a claim to recover for transfer made or premiums paid with intent to defraud creditors, with specifications of the amount claimed.
56-2506. Killer of insured not to receive policy benefits.-No person who commits murder or voluntary man-

56-2507

LIFE INSURANCE

414

slaughter, and no person who conspires with another to commit murder shall receive any benefits from any insurance policy on the life of the deceased even though the person so killing or conspiring be named beneficiary in .such an insurance policy. A plea of guilty or a judicial finding of guilt, not reversed or otherwise set aside as to any of such crimes shall be prima facie evidence of guilt in determining rights under this section. All right, interest, estate and proceeds in such an insurance policy shall go to such other heirs of the deceased as may be entitled thereto by the laws of descent and distribution of this .State, unless secondary beneficiaries be named in the policy, in which event such secondary beneficiaries shall take.
56-2507. Life insurance policies.; prohibited provisions. -(1) No policy of life insurance, except as stated in subsection (3), shall be delivered or issued for delivery in this State if it contains a provision which excludes or restricts liability for death caused in a certain specified manner or occurring while the insured has a specified status, except that the policy may contain provisions excluding or restricting coverage as specified therein in event of death under any one or more of the following circumstances:
(a) Death as a result directly or indirectly of war, declared or undeclared, or of any act or hazard of such war;
(b) Death as the result of aviation or any air travel or flight;
(c) Death as a result of a specified hazardous occupation or occupations;
(d) Death while the insured is a resident outside continental United States and Canada; or
(e) Death within two years from the date of issue of the policy as a result of suicide, while sane or insane.

415

LIFE INSURANCE

56-2508

(2) A policy which contains any exclusion or restriction pursuant to subsection ( 1) shall also provide that in the event of death under circumstances to which any such exclusi0n or restriction is applicable the insurer will pay an amount not less than a reserve determined according to the Commissioners' Reserve Valuation Method upon the basis of the mortality table and interest rate specified in the policy for the calculation of nonforfeiture benefits (or if the policy provides no such benefits, computed according to a mortality table and interest rate determined by the insurer and specified in the policy) with adjustment for indebtedness or dividend credit.
(3) This section shall not apply to group life insurance, reinsurance, annuities, or to any provision of a life insurance policy, or contract supplemental thereto, relating to disability benefits or to .additional benefits in the event of death by accident or accidental means.
(4) Nothing contained in this section shall prohibit any provision which in the opinion of the Commissioner is more favorable to the policyholder than a provision permitted by this section.
56-2508. Policy plans prohibited.-Except as expressly provided in this section, no life insurance policy shall be issued or delivered in this State, as a part of or in combinati,on with any insurance, endowment or annuity contract, any agreement or plan, additional to the rights, dividends, and benefits arising out of any such insurance, endowment or annuity contract:
(1) Which provides for the accumulation of profits over a period of years and for payment of all or .any part of such accumulated profits only to members or policyholders of a designated group or class who continue as members or policyholders until the end of a specified period of years; or
(2) Which provides that on the death of anyone, other than a beneficiary or a person insured thereunder, the

56-2509

LIFE IN SURANCE

416

owner or beneficiary of the policy shall receive the payment or granting of anything of value; or
(3) Which provides that the whole or any part of the premiums or consideration for the policy, dividends, coupons, reserves, special reserves, lapses or the excess interest therefrom or any funds or money in excess of the normal reserve required to meet the contractual guarantees of the policy, are to be placed or invested in special funds or segregated accounts, and the funds or earnings therefrom divided among those taking the policy, their beneficiaries or assignees; or
( 4) Which provides for the sale, solicitation, or delivery of any stock or shares of stock in any company, or provides for a benefit certificate, securities or any special advisory board contract, or other contracts or resolutions of similar nature, or provides for policy dividends bearing a stated relationship to dividends on the stock of any company, as an inducement to or in connection with the sale or acceptance of such policy.
56-2509. Scope of incontestable clause.-A clause in any policy of life insurance providing that such policy shall be incontestable after a specified period shall preclude only a contest of the validity of the policy, and shall not preclude the assertion at any time of defenses based upon provisions in the policy which exclude or restrict coverage, whether or not such restrictions or exclusions are excepted in such clause.
56-2510. Incontestability after reinstatement.-A reinstated policy of life insurance or annuity contract may be contested on account of fraud or misrepresentation of facts material to the reinstatement only for the same period following reinstatement and with the same conditions and exceptions as the policy provides with respect to contestability after original issuance.

417

ANNUITIEs CoNTRACTs, ETC.

56-2602

CHAPTER 56-26
ANNUITIES AND PURE ENDOWMENT CONTRACTS.
56-2601. Definitions. 56-2602. Annuity contracts; standard provisions. 56-2603. Exemption of annuity and endowment proceeds
from creditors. 56-2604. Scope of incontestable clause.
56-2601. Definitions.-As used in this Chapter, the following definitions shall apply:
(1) Annuity. An annuity contract is one by which one party in return for a stipulated payment or payments promises to pay periodic installments for a stated certain period of time or for the life or lives of the person or persons specified in the contract, but does not cover the proceeds of life insurance no matter how payable.
(2) Reversionary Annuity. A reversionary annuity is an annuity contract under which the person otherwise entitled to the proceeds is not to receive any payments unless that person survives another person or persons specified in the contract.
(3) Pure Endowment. A pure endowment is a contract under which one party in return for stipulated payment is obligated to pay a fixed sum if and only if the person designated in the contract survives a certain period specified in the contract.
56-2602. Annuity contract; standard provisions.-No annuity, reversionary annuity or pure endowment contract; other than group annuities and except as stated in this section, shall be delivered or issued for delivery in this State unless it contains in substance each of the provisions specified in this section or contains provisions which in the opinion of the Commissioner are more favorable to contract holders. Any of such provisions not applicable to single premium annuities or single premium

56-2602

ANN UITIES CoNTRACTs, ETc.

418

pure endowment contracts shall not, to that extent, be incorporated therein. This section shall not apply to contracts for deferred annuities included in, or upon the lives of beneficiaries under, life insurance policies.
(1) Grace period. A provision that there shall be a grace period of not less than thrirty (30) days within which any stipulated payment to the insurer falling due after the first may be made during which grace period the contract shall continue in force, but if a claim arises under the contract during the period of grace the amount of such payments may be deducted from any amount payable under the contract in settlement, except that in the case of reversionary annuities, the insurer may at its option provide for an equitable reduction of the amount of the annuity payments in settlement of an overdue or deferred payment in lieu of providing for deduction of such payments from an amount payable upon settlement under the contract.
(2) Incontestability. A provision that the contract shall be incontestable after it has been in force for a period of two years from its date of issue during the life of the person or of each of the persons upon whose life or lives the contract is made except for nonpayment of stipulated payments to the insurer. Provisions relating to benefits in the event of total and permanent disability and provisions which grant additional insurance specifically against death by accident or accidental means may also be excepted.
(3) Entire contract. A provision that if any reference is made to the application for the contract or to the constitution, bylaws or the rules of the insurer as forming part of or as affecting the contract between the parties there shall be included in or attached to said contract when issued a correct copy of the application signed by the applicant and of the constitution, bylaws and rules referred to.
(4) Misstatement of age or sex. A provision that if the age or sex of the person or persons upon whose life or

1 19

ANNUITIES C oNTRACT s, ETc.

56-2602

lives the contract is made, or of any of them, has been misstated, the amount payable or benefits accruing under the contract shall be such as the stipulated payment or payments to the insurer would have purchased according to the correct age or sex; and that if the insurer shall make or has made any overpayment or overpayments on account of any such misstatement, the amount thereof with interest at the rate to be specified in the contract but not exceeding six (6 % ) percent per annum, may be charged against the current or next succeeding payment or payments to be made by the insurer under the contract.
(5) Dividends. If the contract is participating, there shall be a provision that, beginning not later than the end of the third contract year, the insurer shall annually ascertain and apportion any divisible surplus accruing on the contract.
(6) Reinstatement. A provision that the contract may be reinstated at any time within one year from the default in making stipulated payments to the insurer, unless the cash surrender value has been paid, but all overdue stipulated payments and any indebtedness to the insurer on the contract shall be paid or reinstated with interest thereon at a rate to be specified in the contract but not exceeding
six (6 o/c ) percent per annum compounded annually, and
in cases where applicable the insurer may also include a requirement of evidence of insurability satisfactory to the insurer. This subsection shall not apply to reversionary annuities.
(7) Reversionary annuities; reinstatement. In reversionary annuity contracts there shall be a provision that the contract may be reinstated at any time within three years from the date of default in making stipulated payments to the insurer; upon production of evidence of insurability satisfactory to the insurer, and upon condition that all overdue payments and any indebtedness to the insurer on account of the contract be paid, or, within the limits permitted by the then cash values of the contract, reinstated, with interest as to both payments and indebtedness at a rate to be specified in the contract but not

56-2603 ..

GROUP LIFE INSURANCE

420

exceeding six (6 o/c) percent per annum compounded
annually.
56-2603. Exemption of annuity and endowment proceeds from creditors.-If an annuity, reversionary annuity or pure endowment contract, whether heretofore or hereafter issued, shall be effected by any person, based on his own life or on another life, payable to a person other than himself, the lawful beneficiary or assignee thereof, other than the person so effecting such contract or his executors or administrators, shall be entitled to its proceeds and avails against the creditors and representatives of the person effecting such contract, to the same extent and under the same conditions hereinbefore provided with reference to the proceeds and avails of insurance policies in section 56-2505.
56-2604. Scope of incontestable clause.-A clause .in any annuity contract providing that such contract shall be incontestable after a specified period shall preclude only a contest of the validity of the contract, and shall not preclude the assertion at any time of defenses based upon provisions in the contract which exclude or restrict coverage, whether or not such restrictions or exclusions are excepted in such clause.
CHAPTER 56-27
GROUP LIFE INSURANCE.
56-2701. Policies must meet group requirements. 56-2702. Limit as to amount. 56-2703. Dependent coverage. 56-2704. Required provisions. 56-2705. Notice of conversion privileges. 56-2706. Exemption of group life insurance proceeds
from creditors. 56-2707. Assignment of incidents of ownership in group
life insurance policies including conversion privileges.

421

GROUP LIF E INSURANCE

56-2701

56-2701. Policies must meet group requirements.-No policy of group life insurance shall be delivered in this State unless it conforms to one of the following descriptions:
( 1) Employee groups. A policy issued to an employer, or to the trustees of a fund established by an employer, which employer or trustee shall be deemed the policyholder, to insure employees of the employer for the benefit of persons other than the employer, subject to the following requirements:
(a) The employees eligible for insurance under the policy shall be all of the employees of the employer, or all of any class or classes thereof determined by conditions pertaining to their employment. The policy may provide that the term "employees" shall include the employees of one or more subsidiary corporations, and the employees, individual proprietors, and partners of one or more affiliated corporations, proprietors or partnerships if the business of the employer and of such affiliated corporations, proprietors or partnerships is under common control through stock ownership or contract or otherwise. The policy may provide that the term "employees" shall include the individual proprietor or partners if the employer is an individual proprietor or a partnership. The policy may provide that the term "employees" shall include retired employees. No individual proprietor or partner shall be eligible for insurance under the policy unless he is actively engaged in and devotes a substantial part of his time to the conduct of the business of the proprietor or partnership. A policy issued to insure the employees of a public body may provide that the term "employees" shall include elected or appointed officials;
(b) The premium for the policy shall be paid by the policyholder either wholly from the employer's funds or funds contributed by him, or partly from such funds and partly from funds contributed by the insured employees, except as provided in section 56-2431. No policy may be issued on which the entire premium is to be derived from

56-2701

GROUP LIFE INSURANCE

422

funds contributed by the insured employees, except as provided in section 56-2431. A policy on which part of the premium is to be derived from funds contributed by the insured employees may be placed in force only if at least seventy-five (75 % ) percent of the then eligible employe-es, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer, elect to make the required contributions. A policy on which no part of the premium is to be derived from funds contributed by the insured employees must insure all eligible employees, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer;
(c) The policy must cover at least five employees at date of issue;
(d) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the employees or by the employer or trustee.
(2) Debtor groups. A policy issued to a creditor, or to a trustee or agent appointed by two or more creditors, which creditor, trustee or agent, shall be deemed the policyholder, to insure debtors of the creditor, subject to the following requirements:
(a) The debtors eligible for insurance under the policy shall be all of the debtors of the creditor whose indebtedness is repayable either: (i) installments or (ii) in one sum at the end of a period not in excess of eighteen (18) months from the initial date of debt, or all of any class or classes thereof determined by conditions pertaining to the indebtedness or to the purchase giving rise to the indebtedness. The policy may provide that the term "debtors" shall include the debtors of one or more subsidiary corporations, and the debtors of one or more affiliated corporations, proprietors or partnerships if the business of the policyholder and of such affiliated corporations, proprietors or partnerships is under common control through stock ownership, contract, or otherwise. No debtor shall be eligible unless the indebtedness constitutes an irrevocable obligation to repay which is binding upon

123

GROUP LIFE INSU RANCE

56-2701

him during his lifetime at the time the insurance becomes effective upon his life;
(b) The premium for the policy shall be paid by the policyholder, either from the creditor's funds, or from charges collected from the insured debtors, or from both. A policy on which part or all of the premium is to ,be derived from the collection from the insured debtors of identifiable charges not required of uninsured debtors shall not include, in the class or classes of debtors eligible for insurance, debtors under obligations outstanding at its date of issue without evidence of individual insurability unless at least seventy-five (75 % ) percent of the then eligible debtors elect to pay the required charges. A policy on which no part of the premium is to be derived from the collection of such identifiable charges must insure all eligible debtors, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer;
(c) The policy may be issued only if the policy r eserves to the insurer the right to require evidence of individual insurability if less than seventy-five (75 % ) percent of the new entrants become insured. The policy may exclude from the classes eligible for insurance classes of debtors determined by age;
(d) The amount of insurance on the life of any debtor shall at no time exceed the amount owed by him which is repayable in installments, or the amount of the unpaid indebtedness, or twenty thousand ($20,000) dollars, whichever is less. Where the indebtedness is repayable in one sum to the creditor, the insurance on the life of any debtor shall in no instance be in effect for a period in excess of eighteen (18) months except that such insurance may be continued for an additional period not exceeding six months in the case of default, extension or recasting of the loan;
(e) The insurance shall be payable to the policyholder. Such payment shall reduce or extinguish the unpaid indebtedness of the debtor to the extent of such payment.

56-2701

GROUP LIFE INS URANCE

424

(f) Agricultural Loans. Notwithstanding the provision of this section, group life insurance in connection with agricultural loans may be written up to the amount of the loan or loan commitment on the nondecreasing or level term plan; however, the amount of insurance on the life of any such debtor shall not on any anniversary date of the insurance exceed the amount then owed by him which is repayable in installments, or the amount of the then unpaid indebtedness, or twenty thousand ($20,000) dollars, whichever is less.
(3) Labor union groups. A policy issued to a labor union, which shall be deemed the policyholder, to insure members of such union for the benefit of persons other than the union or any of its officials, representatives or agents, subject to the following requirements:
(a) The members eligible for insurance under the policy shall be all of the members of the union, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the union, or both;
(b) The premium for the policy shall be paid by the policyholder, either wholly from the union's funds, or partly from such funds and partly from funds contributed by the insured members specifically for their insurance. No policy may be issued on which the entire premium is to be derived from funds contributed by the insured members specifically for their insurance. A policy on which part of the premium is to be derived from funds contributed by the insured members specifically for their insurance may be placed in force only if at least seventy-five (75 o/c ) percent of the then eligible members, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer, elect to make the required contributions. A policy on which no part of the premium is to be derived from funds contributed by the insured members specifically for their insurance must insure all eligible members, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer;

425

GROUP LIFE INSURANCE

56-2701

(c) The policy must cover at least twenty-five (25) members at date of issue;
(d) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the members or by the union.
(4) Trustee groups. A policy issued to the trustees of a fund established by two or more employers or by one or more labor unions, or by one or more employers and one or more labor unions, which trustees shall be deemed the policyholder, to insure employees of the employers or members of the unions for the benefit of persons other than the employers or the unions, subject to the following requirements:
(a) The persons eligible for insurance shall be all of the employees of the employers or all of the members of the unions, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the unions, or to both. The policy may provide that the term "employees" shall include retired employees, and the individual proprietor or partners if an employer is an individual proprietor or a partnership. No director of a corporate employer shall be eligible for insurance under the policy unless such person is otherwise eligible as a bona fide employee of the corporation by performing services other than the usual duties of a director. No individual proprietor or partner shall be eligible for insurance under the policy unless he is actively engaged in and devotes a substantial part of his time to the conduct of the business of the proprietor or partnership. The policy may provide that the term "employees" shall include the trustees or their employees, or both, if their duties are principally connected with such trusteeship;
(b) The premium for the policy shall be paid by the trustees wholly from funds contributed by the employer or employers of the insured persons, or by the union or unions, or by both, or partly from such funds and partly

56-2701

GROUP LIFE INS URAN CE

426

from funds contributed by the insured persons. No policy may be issued on which the entire premium is to be derived from funds contributed by the insured persons specifically for their insurance. A policy on which part of the premium is to be derived from funds contributed by the insured persons specifically for their insurance may be placed in force only if at least seventy-five (75%) percent of the then eligible persons, excluding any as to whom evidence of insurability is not satisfactory to the insurer, elect to make the required contributions. A policy on which no part of the premium is to be derived from funds contributed by the insured persons specifically for their insurance must insure all eligible persons, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer;
(c) The policy must cover at date of issue at least one hundred (100) persons; and if the fund is established by the members of an association of employers the policy may be issued only if: (i) either the participating employers constitute at date of issue at least sixty ( 60% ) percent of those employer members whose employees are not already covered for group life insurance or the total number of persons covered at date of issue exceeds six hundred (600); and (ii) the policy shall not require that, if a participating employer discontinues membership in the association, the insurance of his employees shall cease solely by reason of such discontinuance;
(d) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the insured persons or by the policyholder, employers, or unions.
(5) Association groups. The lives of a group of individuals may be insured under a policy issued to an association, which shall be deemed the policyholder, to insure members of such association for the benefit of persons other than the association. The term "association" as used herein shall mean; (i) an association of governmental or public employees, or (ii) an association of em-

427

GROUP LIFE I N S URANCE

56-2701

ployees of a common employer, or (iii) an organization

formed and operated in good faith for purposes other

than that of procuring insurance, and composed of mem-

bers engaged in a common trade, business, or profession.

Such a policy shall be subject to the following require-

ments:

',

(a) The members eligible for insurance under the policy shall be all of the members of the association, or all of any class or classes thereof determined by conditions pertaining to their employment, or to their trade, business or profession, or to their membership in the' association, or to any two or more of such conditions. The policy may provide that officers and employees of the association who are bona fide members may be insured under the policy;

(b) The policy must cover at least twenty-five (25) members at date of issue or seventy-five (75 % ) percent of the members eligible for insurance, whichever is the greater;

(c) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the association or by the members;

(d) The premium for the policy shall be paid by the policyholder either from the association's own funds, or from charges collected from the insured members specifically for the insurance, or from both.

(6) Bank and credit union groups. A bank authorized to do business in the State of Georgia may carry insurance upon its depositors for amounts not to exceed the savings deposit balances of each depositor or two thousand ($2,000) dollars whichever is less, and a credit union organized pursuant to the laws of Georgia or the Federal Credit Union Act may carry insurance upon its members for amounts not to exceed the share and deposit balances of each member or two thousand ($2,000) dollars, whichever is less. Such insurance shall be subject to the require-

56-2702

GROUP LIFE INSURANCE

428

ments of subparts (a), (b), (c) and (d) of subsection (5) above.
56-2702. Limit as to amount.-No such policy of group life insurance may be issued to or for an employer or labor union or to or for the trustees of a fund established in whole or in part by an employer or a labor union, or to or for an association which provides term insurance on any person which, together with any other term insurance under any group life insurance policy or policies issued to the employer or employers of such person or to a labor union or labor unions of which such person is a member or to the trustees of a fund or funds established in whole or in part by such employer or employers or such labor union or labor unions, or to an association of which such a person is a member exceeds twenty thousand ($20,000)
dollars, unless one hundred fifty (150 o/c) percent of the
annual compensation of such person from his employer or employers exceeds twenty thousand ($20,000) dollars, in which event all such term insurance shall not exceed forty thousand ($40,000) dollars or one hundred fifty ( 150 o/c ) percent of such annual compensation, whichever is the lesser, except that a group policy which is issued by the same or another carrier to replace another group policy may provide term insurance not to exceed the amounts provided by the policy which it replaces, or the amounts provided above, whichever are greater.
56-2703. Dependent coverage. Any policy issued pursuant to sections 56-2701 (1), 56-2701 (3) and 56-2701 (4) may be extended to insure the employees or members against loss due to the death of their spouses and dependent or minor children, or any class or classes thereof, subject to the following requirements.

(1) The premium for the insurance shall be paid by the policyholder, either from the employer's or union's funds or funds contributed by the insured employees or members, or from both. If any part of the premium is to be derived from funds contributed by the insured employees or members, the insurance with respect to spouses

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and children may be placed in force only if at least seventy-five (75o/c) percent of the then eligible employees or members, excluding any as to whose family members evidence of insurability is not satisfactory to the insurer, elect to make the required contribution. If no part of the premium is to be derived from funds contributed by the employees or members, all eligible employees or members, excluding any as to whose family members evidence of insurability is not satisfactory to the insurer, must be insured with respect to their spouses and children;
(2) The insurance must be based on some plan precluding individual selection either by the employees or members or by the policyholder, employer or union, and the amount shall not exceed two thousand ($2,000) dollars with respect to any spouse or child;
(3) Upon termination of the insurance with respect to the members of the family of any employee or member by reason of the employee's or member's termination of employment, termination of membership in the class or classes eligible for coverage under the policy, or death, the spouse shall be entitled to have issued by the insurer, without evidence of insurability, an individual policy of life insurance without disability or other supplementary benefits, providing application for the individual policy shall be made, and the first premium paid to the insurer, within thirty-one (31) days after such termination, subject to the requirements of subsections (a), (b) and (c) of section 56-2704 (8). If the group policy terminates or is amended so as to terminate the insurance of any class of employees or members and the employee or member is entitled to have issued an individual policy under section 56-2704 (9), the spouse shall also be entitled to have issued by the insurer an individual policy, subject to the conditions and limitations provided above. If the spouse dies within the period during which he would have been entitled to have an individual policy issued in accordance with this provision, the amount of life insurance which he would have been entitled to have issued under such individual policy shall be payable as a claim under the

56-2704

G ROU P LIFE I NSURAN CE

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group policy, whether or not application for the individ:. ual policy or the payment of the first premium therefor has been made;
(4) Notwithstanding section 56-2704 (7) only one certificate need be issued for delivery to an insured person if a statement concerning any dependent's coverage is included in such certificate.
56-2704. Required Provisions.-No policy or group insurance shall be delivered in this State, unless it contains in substance the following provisions, or provisions which in the opinion of the Commissioner are more favorable to the persons insured, or at least as favorable to the persons insured and more favorable to the policyholder; Provided, however, (i) that provisions (6) to (10) inclusive shall not apply to policies issued to a creditor to insure debtors of such creditor; (ii) that the standard provisions required for individual life insurance policies shall not apply to group insurance policies; and (iii) that if the group life insurance policy is on a plan of insurance other than the term plan, it shall contain a nonforfeiture provision or provisions which in the opinion of the Commissioner is or are equitable to the insured persons and to the policyholder, but nothing herein shall be construed to require that group life insurance policies contain the same nonforfeiture provisions as are required for individual life insurance policies:
(1) A provision that the policyholder is entitled to a grace period of not less than thirty-one (31) days for the payment of any premium due except the first, during which grace period the death benefit coverage shall continue in force, unless the policyholder shall have given the insurer written notice of discontinuance in advance of the date of discontinuance and in accordance with the terms of the policy. The policy may provide that the policyholder shall be liable to the insurer for the payment of a pro rata premium for the time the policy was in force during such grace period;
(2) A provision that the validity of the policy shall not

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be contested, except for nonpayment of premiums, after it has been in force for two years from its date of issue; and that no statement made by any person insured under the policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force prior to the contest for a period of two years during such person's lifetime nor unless it is contained in a written instrument signed by him;
(3) A provision that a copy of the aplication, if any, of the policyholder shall be attached to the policy when issued, that all statements made by the policyholder or by the persons insured shall be deemed representations and not warranties, and that no statement made by any person insured shall be used in any contest unless a copy of the instrument containing the statement is or has been furnished to such person or to his beneficiary;
(4) A provision setting forth the conditions, if any, under which th.e insurer reserves the right to require a person eligible for insurance to furnish evidence of individual insurability satisfactory to the insurer as a condition to part or all of his coverage ;
(5) A provision specifying an equitable adjustment of premiums or of benefits or of both to be made in the event the age of a person insured has been misstated, such provision to contain a clear statement of the method of adjustment to be used;
(6) A provision that any sum becoming due by reason of the death of the person insured shall be payable to the beneficiary designated by the person insured, subject to the provisions of the policy in the event there is no designated beneficiary, Jiving at the death of the person insured, as to all or any part of such sum, and subject to any right reserved by the insurer in the policy and set forth in the certificate to pay at its option a part of such sum not exceeding five hundred ($500) dollars to any person appearing to the insurer to be equitably entitled thereto by reason of having incurred funeral or other ex-

56-2704

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penses incident to the last illness or death of the person insured;
(7) A provision that the insurer will issue to the policyholder for delivery to each person insured an individual certificate setting forth a statement as to the insurance protection to which he is entitled, to whom the insurance benefits are payable, and the rights and conditions set forth in subsections (8), (9) and (10) following;
(8) A provision that if the insurance, or any portion of it, on a person covered under the policy other than the child of an employee insured pursuant to section 56-2703 ceases because of termination of employment or of membership in the class or classes eligible for coverage under the policy, such person shall be entitled to have issued to him by the insurer, without evidence of insurability, an individual policy of life insurance without disability or other supplementary benefits; Provided application for the individual policy shall be made, and the first premium paid to the insurer, within thirty-one (31) days after such termination, and ; Provided further that:
(a) The individual policy shall, at the option of such person be on any one of the forms, except term insurance, then customarily issued by the insurer at the age and for the amount applied for;
(b) The individual policy shall be in an amount not in excess of the amount of life insurance which ceases because of such termination, less the amount of any life insurance for which such person is or becomes eligible within thirty-one (31) days after such termination under the same or any other group policy; Provided, that any amount of insurance which shall have matured on or before the date of such termination as an endowment payable to the person insured, whether in one sum or in installments or in the form of an annuity, shall not, for the purposes of this provision, be included in the amount which is considered to cease because of such termination; and

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(c) The premium on the individual policy shall be at the insurer's then customary rate applicable to the form and amount of the individual policy, to the class of risk to which such person then belongs, and to his age attained on the effective date of the individual policy.
(9) A provision that if the gro:up policy terminates or is amended so as to terminate the insurance of any class of insured persons, every person insured thereunder at the date of such termination, other than a child of an employee insured pursuant to section 56-2703, whose insurance terminates and who has been so insured for at least five years prior to such termination date shall be entitled to have issued to him by the insurer an individual policy of life insurance, subject to the same conditions and limitations as are provided by subsection (8) above, except that the group policy may provide that the amount of such individual policy shall not exceed the smaller of (i) the amount of the person's life insurance protection ceasing because of the termination or amendment of the group policy, less the amount of any life insurance for which he is or becomes eligible under any group policy issued or reinstated by the same or another insurer within thirtyone (31) days after such termination, and (ii) two thousand ($2,000) dollars; and
(10) A provision that if a person insured under the group policy dies during the period within which he would have been entitled to have an individual policy issued to him in accordance with subsections (8) or (9) above and before such an individual policy shall have become effective, the amount of life insurance which he would have been entitled to have issued to him under such individual policy shall be payable as a claim under the group policy, whether or not application for the individual policy or the payment of the first premium therefor has been made.
56-2705. Notice of conversion privileges.-If any individual insured under a group insurance policy hereafter delivered in this State becomes entitled under the terms of such policy to have an individual policy of life insur-