§ 4 — Examination of companies

Massachusetts § 4

• Jurisdiction: Massachusetts
• Part I: ADMINISTRATION OF THE GOVERNMENT
• Title XXII: CORPORATIONS
• Ch. 175: INSURANCE

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Section 4. (1) Before granting licenses or certificates of authority to a company to issue policies of insurance or annuity or pure endowment contracts, the commissioner shall be satisfied, by such examination as the commissioner may make and such evidence as the commissioner may require, that such company is otherwise duly qualified under the law of the commonwealth to transact business therein; provided, however, that before granting such a certificate of authority to a domestic company, the commissioner shall require the filing with the division of insurance of an affidavit signed by the officers of the company stating the amount of expenses incurred in the organization thereof and stating that the company has no outstanding liabilities except said organization expenses and except, in the case of a stock company or a mutual company with a guaranty capital, its liabilities to stockholders for the amount paid in for shares of stock. The commissioner may make an examination and investigation concerning the truth of the matters contained in such affidavit as the commissioner deems necessary. Such affidavit shall be kept in the office of the commissioner and shall be open to public inspection. The commissioner shall require every domestic company to keep its books, records, accounts and vouchers in such manner that the commissioner or any authorized representatives may readily verify its annual statements and ascertain whether the company has complied with the law.(2) At least once in every five years, and whenever the commissioner determines it to be prudent, the commissioner shall personally, or by any deputy or examiner, visit each domestic company and any foreign company applying for admission or already admitted to do business in the commonwealth, and thoroughly inspect and examine its affairs and ascertain its financial condition, its ability to fulfill its obligations, whether it has complied with the law and any other facts relating to its business methods and management, and the equity of its dealings with its policyholders. The commissioner shall also make such examination upon the request of five or more stockholders, creditors, policyholders or persons pecuniarily interested therein who shall make an affidavit of their belief, with specifications of the reasons therefore, that such company is in an unsound condition. The commissioner, or any deputy or examiner may also, whenever the commissioner determines it to be prudent, visit any other entity subject to the commissioner's jurisdiction, including but is not limited to, joint underwriting associations, residual market mechanisms and insurers issuing insurance through special insurance brokers pursuant to section one hundred and sixty-eight.(3) In scheduling and determining the nature, scope and frequency of the examinations, the commissioner shall consider such matters as the results of financial statement analyses and ratios, changes in management or ownership, actuarial opinions, reports of independent certified public accountants and other criteria as set forth in the examiners' handbook adopted by the National Association of Insurance Commissioners and in effect when the commissioner exercises discretion under this section. The commissioner may also consider other matters reasonably related to solvency or market conduct. In conducting the examination, the examiner shall observe guidelines and procedures set forth in the examiners' handbook adopted by the National Association of Insurance Commissioners. The commissioner may also employ such other guidelines or procedures as the commissioner may deem appropriate.(4) The charge for each such examination shall be determined annually by the commissioner of administration under the provision of section three B of chapter seven, and shall be paid by each company within thirty days after notice from the commissioner of such charge. Such charge shall include an amount equal to the cost of fringe benefits as established by the commissioner of administration pursuant to section six B of chapter twenty-nine. If in the course of an examination of a domestic company or foreign company which maintains a branch office outside the commonwealth, it becomes necessary or expedient for the commissioner or any deputies or examiners to travel outside the commonwealth, such company shall pay the proper expenses of the commissioner, or any deputies or examiners incurred by reason thereof. Whenever the commissioner deems it advisable the commissioner shall cause a complete audit of the books of the company to be made by a disinterested expert accountant, and such company shall pay the proper expenses of such audit. When making an examination under this section, the commissioner may retain attorneys, appraisers independent actuaries, independent certified public accountants and other professionals and specialists as examiners, the proper cost of which shall be borne by the company which is the subject of the examination.(5) In lieu of an examination under this section of any foreign or alien insurer licensed in the commonwealth, the commissioner may accept an examination report on the company as prepared by the insurance department for the company's state of domicile or port-of-entry state until January first, nineteen hundred and ninety-four. Thereafter, such reports may only be accepted if: (a) the insurance department was at the time of the examination accredited under the National Association of Insurance Commissioners' Financial Regulation Standards and Accreditation Program; or (b) the examination is performed under the supervision of an accredited insurance department or with the participation of one or more examiners who are employed by such an accredited insurance department and who, after a review of the examination work papers and report, state under oath that the examination was performed in a manner consistent with the standards and procedures required by their accredited insurance department.(6) If it shall appear upon examination that any company has entered into an agreement with a corporation, domestic or foreign, or other organization whereby such corporation has undertaken, except by reinsurance, to be responsible for the whole or any part of the expenses, liabilities or other obligations appertaining to the transaction of business by such company for the consideration that such company shall become liable to such corporation or organization for a part of said company's income, assets or profits, the commissioner may examine or cause to be examined such corporation or organization, and may thoroughly investigate its affairs to ascertain its financial condition, its ability to fulfill its obligation to the company, and any other facts relating to its business methods and management, and shall set forth any findings, so far as they affect the financial condition of the company, in a report which shall be a public record.(7) Nothing contained in this section shall be construed to limit the commissioner's authority to terminate or suspend any examination in order to pursue other legal or regulatory action pursuant to this chapter, chapters one hundred and seventy-five J, one hundred and seventy-six D and one hundred and seventy-six I, and any other applicable sections of the General Laws. Findings of fact and conclusions made pursuant to any examination shall be prima facie evidence in any legal or regulatory action.(8) Nothing contained in this section shall be construed to limit the commissioner's authority to use and if appropriate, to make public any final or preliminary examination report, any examiner or company work papers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action which the commissioner may, in his sole discretion, deem appropriate.(9) Any report of an examination shall be comprised of only facts appearing upon the books, records, or other documents of the company, its agents or other persons examined, or as ascertained from the testimony of its officers, agents or other persons examined concerning its affairs, and such conclusions and recommendations as the examiners find reasonably warranted from the facts. The assets and liabilities of the company shall be allowed and computed, in any report of an examination under this section, in accordance with sections nine to twelve, inclusive, and may be set forth in such report in accordance with the items specified in the forms of annual statements prescribed by section twenty-five, as the commissioner may deem appropriate.(10) No later than sixty days following completion of the examination, the examiner in charge shall file with the commissioner a verified written report of examination under oath. Upon receipt of the verified report, the commissioner shall transmit the report to the company examined, together with a notice which shall afford the company examined a reasonable opportunity of not more than thirty days to make a written submission or rebuttal with respect to any matters contained in the examination report. Within thirty days of the end of the period allowed for the receipt of written submissions or rebuttals, the commissioner shall consider and review the reports together with any written submissions or rebuttals and any relevant portions of the examiner's work papers and enter an order:(a) adopting the examination report as filed with modifications or corrections, and if the examination report reveals that the company is operating in violation of any law, regulation or prior order of the commissioner, the commissioner may order the company to take any action the commissioner considers necessary and appropriate to cure such violation; or(b) rejecting the examination report with directions to examiners to reopen the examination for the purposes of obtaining additional data, documentation or information, and refiling pursuant to the provisions above; or(c) calling for an investigatory hearing with no less than twenty days notice to the company for purposes of obtaining additional documentation, data, information and testimony.(11) An order entered pursuant to this section shall be accompanied by findings and conclusions resulting from the commissioner's consideration and review of the examination report, relevant examiner work papers and any written submissions or rebuttals. An order shall be considered a final agency decision and may be appealed pursuant to chapter thirty A and shall be served upon the company by certified mail, together with a copy of the adopted examination report. Within thirty days of the issuance of the adopted report, the company shall file affidavits executed by each of its directors stating under oath that they have received a copy of the adopted report and related orders. Any hearing conducted under this section by the commissioner or designee shall be conducted as a nonadversarial confidential investigatory proceeding as necessary for the resolution of the inconsistencies, discrepancies or disputed issues apparent upon the face of the filed examination report or raised by or as a result of the commissioner's review of relevant work papers or by the written submission or rebuttal of the company. Within twenty days of the conclusion of any such hearing, the commissioner shall enter an order pursuant to this section. The hearing shall be conducted in accordance with rules and regulations promulgated by the commissioner.(12) Notwithstanding any other provision of the General Laws, including clause Twenty-sixth of section 7 of chapter 4 and chapter 66, documents, materials or other information, including but not limited to, all working papers and copies thereof created, produced or obtained by or disclosed to the commissioner or any other person in the course of an examination made pursuant to this section or in the course of analysis by the commissioner of the financial condition or market conduct of a company shall be confidential by law and privileged, shall not be a public record under said clause Twenty-sixth, shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action. The commissioner may use the documents, materials or other information in the furtherance of any regulatory or legal action brought as part of the commissioner's official duties.(a) Documents, materials or other information, including but not limited to, all working papers and copies thereof in the possession or control of the National Association of Insurance Commissioners and its affiliates and subsidiaries shall be confidential by law and privileged, shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action if they are:(i) created, produced, obtained by or disclosed to the National Association of Insurance Commissioners and its affiliates and subsidiaries in the course of the National Association of Insurance Commissioners and its affiliates and subsidiaries assisting an examination made pursuant to this subsection or assisting the commissioner in the analysis of the financial condition or market conduct of a company; or(ii) disclosed to the National Association of Insurance Commissioners and its affiliates and subsidiaries pursuant to this subsection by any member of the National Association of Insurance Commissioners.(b) Neither the commissioner nor any person who received the documents, material or other information while acting under the authority of the commissioner, including the National Association of Insurance Commissioners and its affiliates and subsidiaries, shall be permitted to testify in any private civil action concerning any confidential documents, materials or information subject to this section.(c) In order to assist in the performance of the commissioner's duties, the commissioner:(i) may share documents, materials or other information, including the confidential and privileged documents, materials or information subject to this subsection with other state, federal and international regulatory agencies, the National Association of Insurance Commissioners and its affiliates and subsidiaries and state, federal and international law enforcement authorities provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material, communication or other information;(ii) may receive documents, materials, communications or information, including otherwise confidential and privileged documents, materials or information, from the National Association of Insurance Commissioners and its affiliates and subsidiaries and regulatory and law enforcement officials of other foreign or domestic jurisdictions and shall maintain as confidential or privileged any document, material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information; and(iii) may enter into agreements governing sharing and use of information consistent with this subsection.(d) No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the commissioner under this subsection or as a result of sharing as authorized in this subsection.(e) A privilege established under the law of any state or jurisdiction that is substantially similar to the privilege established under this subsection shall be available and enforced in any proceeding in and in any court of the commonwealth.(13) If it shall appear to the commissioner, from charges filed with the division setting forth the facts under oath, that unwarranted and misleading statements, estimates and promises have been made, and excessive compensation allowed for, promoting the sale in the commonwealth of stock for establishing a new company, domestic or foreign, the commissioner shall investigate said charges, or may act on the commissioner's own initiative in making such investigations, and shall make a record in the division of any findings in relation thereto.(14) The commissioner may investigate, in such manner and to such extent as the commissioner may deem expedient, a complaint of a policyholder in respect to a claim under a policy of insurance or annuity or pure endowment contract.(15) The commissioner or any person authorized by the commissioner to make examinations or investigations provided for by this section shall have access to all the assets of the company, corporation or other organization for the purpose of verification and to all the books and papers relating to its business and to the books and papers of its representatives. The commissioner or any person authorized by the commissioner may summon and examine under oath any person who, the commission or the examiner reasonably believes, has knowledge of the affairs, transactions or circumstances being examined or investigated; and the refusal, without justifiable cause, of any person, including any company, its officers, directors, employees or agents to submit to examination or to comply with any reasonable written request of the commissioner or any representative shall be grounds for suspension or refusal of, or nonrenewal of any license or authority held by the company to engage in an insurance or other business subject to the commissioner's jurisdiction, and shall be subject to a fine of not more than one thousand dollars or to imprisonment for not more than one year. Any such proceedings for suspension, revocation or refusal of any license or authority shall be conducted pursuant to the provisions of section five.(16) No examiner may be appointed by the commissioner if such examiner, either directly or indirectly, has a conflict of interest, or is affiliated with the management of, or owns a pecuniary interest in any company subject to examination under this section. This section shall not be construed to automatically preclude an examiner from being: a policyholder or claimant under an insurance policy; a grantor of a mortgage or similar instrument on the examiner's residence to a regulated entity if done under customary terms and in the ordinary course of business; an investment owner in shares of regulated diversified investment companies; or a settlor or beneficiary of a blind trust into which any otherwise impermissible holdings have been placed. Notwithstanding the requirements of this section, the commissioner may retain qualified actuaries, certified public accountants, or other similar individuals who are independently practicing their professions, even if said persons may from time to time be similarly employed or retained by a company subject to examination under this section.(17) No cause of action shall arise nor shall any liability be imposed against the commissioner, the commissioner's authorized representatives or any examiner appointed by the commissioner for any statements made or conduct performed in good faith while carrying out the provisions of this section. No cause of action shall arise, nor shall any liability be imposed against any person for the act of communicating or delivering information or data to the commissioner or the commissioner's authorized representative or examiner pursuant to an examination made under this section, if such act of communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive. This section shall not abrogate or modify a common law or statutory privilege or immunity heretofore enjoyed by such person identified. Such person shall be entitled to an award of attorney's fees and costs if such person is the prevailing party in a civil cause of action for libel, slander or any other relevant tort arising out of activities in carrying out the provisions of this section if the party bringing the action was not justified in doing so. For purposes of this section a proceeding is justified if it had a reasonable basis in law or fact at the time it was initiated.